Rolling over previous employeers Roth 401(k) into Roth IRA

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B4Xt3r
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Rolling over previous employeers Roth 401(k) into Roth IRA

Post by B4Xt3r »

Hi All,

I come seeking help :o . I'm considering rolling over a previous employeer's Roth 401(k) into a Roth IRA (the ROTH IRA is less than 5 years old). There are two issues that concern me.

(1) I believe that the employeer match into the 401(k) is traditional, while our contributions were ROTH. How does this effect the rollover process?

(2) I plan on using most of the Roth IRA contributions for a house downpayment. If I rollover the Roth 401(k) beforehand, how would that effect my ability to withdraw contributions?

Thanks!

-B4xt3r
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B4Xt3r
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by B4Xt3r »

No help? (Even a link where I can educate myself would be much appreciated.)
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FiveK
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by FiveK »

B4Xt3r wrote: Wed Dec 19, 2018 8:08 am (1) I believe that the employeer match into the 401(k) is traditional, while our contributions were ROTH. How does this effect the rollover process?
The traditional 401k amount should go into a traditional IRA, and the Roth 401k amount should go into a Roth IRA.

Unless you want to convert and pay tax on the traditional 401k amount, in which case it can all go into a Roth IRA.
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B4Xt3r
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by B4Xt3r »

FiveK wrote: Wed Dec 19, 2018 8:00 pm
B4Xt3r wrote: Wed Dec 19, 2018 8:08 am (1) I believe that the employeer match into the 401(k) is traditional, while our contributions were ROTH. How does this effect the rollover process?
The traditional 401k amount should go into a traditional IRA, and the Roth 401k amount should go into a Roth IRA.

Unless you want to convert and pay tax on the traditional 401k amount, in which case it can all go into a Roth IRA.
Ok, so when I tell the company who manages the 401(k), I'll just need to specify which option that I want?
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FiveK
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by FiveK »

B4Xt3r wrote: Wed Dec 19, 2018 8:28 pm Ok, so when I tell the company who manages the 401(k), I'll just need to specify which option that I want?
You might have better luck by telling the IRA administrator what you want and have them take the lead helping you pull the money directly from the 401k administrator.
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B4Xt3r
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by B4Xt3r »

FiveK wrote: Wed Dec 19, 2018 9:18 pm
B4Xt3r wrote: Wed Dec 19, 2018 8:28 pm Ok, so when I tell the company who manages the 401(k), I'll just need to specify which option that I want?
You might have better luck by telling the IRA administrator what you want and have them take the lead helping you pull the money directly from the 401k administrator.
:sharebeer
retiredjg
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by retiredjg »

B4Xt3r wrote: Wed Dec 19, 2018 8:08 am (2) I plan on using most of the Roth IRA contributions for a house downpayment. If I rollover the Roth 401(k) beforehand, how would that effect my ability to withdraw contributions?
Here's how I think it works. This assumes that you used direct contributions to your Roth IRA and to your Roth 401k. If you used the back door for the Roth IRA or an in-plan Roth Rollover for the 401k, this may not be correct.

Your Roth IRA currently contains contributions and earnings that have occurred inside the Roth IRA. Your contributions are available any time for any reason with no penalty. The earnings are not yet available without tax/penalty because the Roth IRA is not old enough and I suspect you are not old enough either.

If you roll the Roth 401k money into the Roth IRA (while sending the traditional 401k money to tIRA), the Roth 401k contributions join the Roth IRA contributions and are available any time without penalty. The earnings that occurred in the Roth 401k join the earnings that were already in the Roth IRA and are not available without tax/penalty.

When you do the rollover, your 1099 should have the contributions in one box and the earnings in another box (or you can figure it out by subtracting the contributions from the total). Keep up with these numbers because it is important to know the "basis" for your Roth IRA - the sum of all the contributions.

There may be some exceptions which would make those earnings available without penalty.


If you want, you can roll the entire 401k into the Roth IRA but that will trigger taxes on the portion that was outside the Roth 401k account. You might want to avoid that since you would need to pay the taxes from savings.
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RickBoglehead
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by RickBoglehead »

I would add that a first time home purchaser (or someone that hasn't owned a home for 2 years), can withdraw up to $10,000 of IRA earnings without penalty (once in lifetime).
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saltz1979
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by saltz1979 »

Our plan administrator stated if Roth contributions are taken out before they are in for 5 years there is a penalty to do so.
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FiveK
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by FiveK »

saltz1979 wrote: Thu Dec 20, 2018 8:30 am Our plan administrator stated if Roth contributions are taken out before they are in for 5 years there is a penalty to do so.
That can be but is not necessarily true. See Two 5-Year Rules For Roth IRA Contributions & Conversions for more.
retiredjg
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by retiredjg »

saltz1979 wrote: Thu Dec 20, 2018 8:30 am Our plan administrator stated if Roth contributions are taken out before they are in for 5 years there is a penalty to do so.
Hard to know what your administrator was talking about - contributions to Roth IRA? Roth 401k? Rollover from traditional 401k to Roth IRA? Rollover from Roth 401k to Roth IRA?

There is a 5 year clock on one of those (traditional 401k to Roth IRA). But your statement as it is worded is incorrect.

In your administrator's defense, that is a widely held misconception.
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B4Xt3r
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by B4Xt3r »

Ok, so if I understand things correctly for a ROTH IRA that has not been around for 5 years, it is only the contributions which could be used for a house downpayment without penalty. Hypothetically, if I rolled over the ROTH 401(k) into the ROTH IRA, then the contributions to the ROTH 401(k) would also be accessible for house downpayment.

Is that correct?
retiredjg
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by retiredjg »

That is my understanding.

It appears that the penalty exception for $10k for a first time home is tied to a 5 year clock, so no exception in your case.
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B4Xt3r
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by B4Xt3r »

Hi All,

I thought that I would resurrect this thread. The following sources seemingly indicate that that Roth 401(k) contributions can be withdrawn penalty free after they are rolled over into your Roth IRA.

If that is the case, and assuming that the custodian and funds of the Roth IRA are as reasonable as the Roth 401(k), are there any reasons one would desire to keep their previous employer's Roth 401(k)?

https://mbafcpa.com/advisories/roth-401 ... year-rule/

https://www.investopedia.com/terms/o/orderingrules.asp

https://fairmark.com/retirement/roth-ac ... -accounts/

https://fairmark.com/retirement/roth-ac ... roth-iras/
retiredjg
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Re: Rolling over previous employeers Roth 401(k) into Roth IRA

Post by retiredjg »

B4Xt3r wrote: Sun May 26, 2019 3:03 pm If that is the case, and assuming that the custodian and funds of the Roth IRA are as reasonable as the Roth 401(k), are there any reasons one would desire to keep their previous employer's Roth 401(k)?
There might be a few reasons.
  • For example, it is said (I have no direct knowledge) that some states offer more protection from creditors to 401k accounts than to Roth IRAs.

    Some people get institutional fund expense ratios in the 401k (lower than what you could get in your Roth IRA).

    Many people do not have just Roth 401k. They have a combination of tax-deferred money and Roth money in their 401k. The 401k plan may not allow just rolling out the Roth portion. If they roll out the tax-deferred portion to tIRA, it would interfere with using the back door to contribute to Roth IRA.
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