401(k) Rollovers Part 2: How Do I Rollover My Roth 401(k) Into a Roth IRA?

[@colbyharder4733]

Can I move my Roth 401k to a Roth IRA rollever, but leave my Pre-tax 401k alone? This seems like an ideal solution for someone who would like to retire at 55.

[@AllGenFinancial]

Thanks for your question Colby! Taking money out of your company retirement plan while still working there is called an in-service distribution. Most company plans don't allow this - with some exceptions, typically tied to hardship, etc. To get a specific answer you would have to inquire at your respective company and see if they allow in-service withdrawals/distributions. Every situation is unique and we're always here to help! Feel free to reach out for a virtual (free) financial review at 407-210-3888 or www.allgenfinancial.com/contact-us/

[@colbyharder4733]

@@AllGenFinancial Apologies for the confusion. I was thinking of waiting until retiring at age 55, and then rolling over the Roth 401k assets to a rollover Roth IRA. That way I would be able to withdraw the Roth contributions from the rollover Roth IRA penalty/tax free. But I also want to leave the pre-tax 401k assets in the 401k, so I can withdraw them penalty free, using the Rule of 55 rule. Am I allowed to only rollover the Roth 401k assets, but leave the pre-tax 401k assets, as described above?

[@AllGenFinancial]

​@@colbyharder4733 Hi Colby, we really appreciate that clarification! Hmmm. This particular question is pretty complex and our answer honestly depends on many different variables. We also value your privacy. Please do reach out to us for a no-strings-attached, one-on-one conversation so we can answer your question more accurately. We're happy to educate! :) 407-210-3888 or www.allgenfinancial.com/contact-us/ While you're on our site, you can also sign up for our Building a Foundation eCourse for free as well!

[@mateuszpasierbek1924]

Very helpful - exactly was I was looking for. Thank you so much!

[@salmoenilla]

I have contributions to my employer Roth 401k but will not have the match amounts vested as I'm well below the vesting period and will likely be gone. I already have a ROTH IRA, would opening up a Traditional IRA for this scenario even be necessary since its not vested?

[@AllGenFinancial]

Hi Salvador, thank you for your question! 😊The short answer is no, as long as all of your contributions are in a Roth 401k and no contributions (including employer matching contributions) went to pre-tax (traditional 401k), then it would not be necessary to open a traditional IRA. You could use your existing Roth IRA only for the rollover. Every situation can be unique, so please don't hesitate to reach out to us if you have any questions! Our initial consultations are always complimentary. 407-210-3888 or www.allgenfinancial.com/contact-us/

[@salmoenilla]

@@AllGenFinancial thanks so much! greatly appreciated. keep up the great content!

[@AllGenFinancial]

@Salvador Montes Thank you for your kind words!! We're always here to help. 😊

[@thiru650]

Hello, Thank you for the helpful video. I have a question. The contributions to Roth 401k are after tax. But the growth here is tax free. So is it ok to rollover all of the money in Roth 401k (both after tax contributions and pre-tax growth) to a Roth IRA?

[@AllGenFinancial]

Thanks for reaching out! Great question. When you contribute to a Roth 401k, these are after-tax contributions (not pre-tax). Both the after tax contributions and the growth of those monies is tax free and they can both be rolled over to a Roth IRA after separation from the employer. If there is a match on the 401k, then the match would go in to a traditional (pre-tax) 401k. In this case you would have two 401(k)s. You would have a traditional (pre-tax) 401k and a Roth (after tax/tax free) 401k. The match would get rolled over to a traditional IRA (aka - Rollover IRA). I hope this helps! Rollovers can be complicated, and selecting the best option can save money. Please let us know if you would like to go over specifics of your situation. We're here to serve. 407-210-3888

[@rcwilson9510]

I retired this year, I am over 59 1/2, and I retired with a 401k holding both pre-tax and after tax (Roth) funds. I have already rolled over the pre-tax funds into a rollover traditional IRA. The Roth 401k funds are still in my employer plan and that account was opened when my former employer began offering a Roth 401k option in 2019. I have a Roth IRA which I opened in 2014 and I would like to roll the Roth 401k funds into it. My Roth IRA has been open more than 5 years, but my Roth 401k has not. Can I roll the Roth 401k funds over now or do I have to wait until 2024 when the Roth 401k account reaches the age of 5?

[@AllGenFinancial]

Hi RC! Thank you so much for your question! You can rollover the Roth 401K now, as there is no 5 year rule as it relates to rolling your money over. Where the 5 year rule would apply is upon rollover, if you hadn’t funded the Roth IRA previously, you would have to wait 5 years from the rollover date to take money out without penalty. But again, you are free to rollover the money at any time. Please let us know if you have any further questions! We're here to serve. 407-210-3888

[@rcwilson9510]

@@AllGenFinancial OK, thank you!

[@rcwilson9510]

@@AllGenFinancial OK, thank you!

[@ME-rv1pw]

How are these Roth 401k rollover dollars treated for early withdrawals? Can they be withdrawn the same as Roth IRA contributions? Are the Roth 401k contributions and earnings separated? Do you have to wait five years like a traditional ira to Roth IRA conversion? (Assuming all accounts have been open for more than 5 years)

[@AllGenFinancial]

Thank you for your questions! As you are obviously aware, there are many layers to your questions. So we will attempt to give some high level clarity here and welcome a conversation if needed to get more specific. The obvious, Roth IRAs and Roth 401Ks both offer the ability to contribute after tax monies, grow tax deferred and distribute without taxation. These dynamics all play true as long as the distributions are qualified. Qualified distribution fundamentally means the account was open (and initially funded) 5 years prior and you are 591/2 or older. Rolling over monies from a Roth 401K into a Roth IRA does bring to the forefront the 5 year rule. As long as your Roth IRA was opened and at least one contribution was made 5 years prior, you have taken care of the 5 year rule portion of the qualified distribution. In the case where this is true and you distribute funds prior to 59 ½ , then you will be able to distribute the contributions without issue but will pay the taxes and penalties on the growth. You ask the important question of cost basis and growth tracking. The responsibility of tracking contributions versus growth falls on the taxpayer. So it is prudent practice to keep track of statements that reflect all of your contributions in case you need to track these for tax or audit purposes. The exception to this would be if the reason for your early distribution is for one of the allowable hardship distributions, such as disability, qdro, etc. Another consideration, if you are over 55, is to not do a rollover but leave the money at the former employer whereby you can now access the monies at age 55 or older without penalty. We hope this gives some guidance to your situation but as mentioned, and understanding that there are various nuances to this, we are happy to hop on a call and chat more specifics.

[@tristanchristopherpaceley6180]

A Roth 401(k) is split up into three portions: your Roth contributions, the earnings on your Roth contributions (called "Roth Pre-Tax Assets"), and Pre-Tax Assets (employer pre-tax contributions and its earnings). Your Roth contributions are like contributions in a Roth IRA; you can withdraw them completely tax- and penalty-free at any time. The only difference is if you do a partial distribution the amounts to each portion come out prorated. You can't take your Roth contributions out first. The earnings on your Roth contributions are treated like earnings in a Roth IRA. If you take a distribution and you're under 59-1/2 (and don't meet another qualifying event) then you have regular taxes and the 10% penalty. If you're over 59-1/2 ( or meet another qualifying event) but you haven't had the Roth 401(k) five years then you have regular taxes but no 10% penalty. If you're over 59-1/2 (or meet another qualifying event) and you've had the Roth 401(k) over five years then earnings on your Roth contributions are completely tax- and penalty-free. The pre-tax portion works like a Traditional IRA. If you're under 59-1/2 you have regular taxes and a 10% penalty. If you're over 59-1/2, whether or not you've had the Roth 401(k) five years, you will always have regular taxes on the pre-tax portion. The five-year-rule does not apply to the pre-tax portion. So if you're under 59-1/2 (and don't meet another qualifying event) then you have regular taxes and 10% penalty on both the earnings of your Roth contributions (the Roth Pre-Tax Assets) and the entire pre-tax portion. Those two portions are taxed the same, and only your Roth contributions are tax-free. If you're over 59-1/2 and have had the Roth 401(k) over five years then the entire Roth portion (both contributions and earnings) is completely tax- and penalty-free, and you have regular taxes but no 10% penalty on the entire pre-tax portion (both contributions and earnings). As far as rolling over to a Roth IRA, when you do the rollover/conversion you do not pay taxes on the entire Roth portion (contributions and earnings) and you pay taxes on the entire pre-tax portion (contributions and earnings). If you keep the pre-tax portion in a Traditional IRA you don't pay taxes on it (until it's taken out or converted at some point later), but if you convert it to a Roth IRA you pay regular taxes but not the 10% penalty. Once the money is in the Roth IRA, your Roth contributions are in the "Contributions" portion of your Roth IRA. If you have put your own money into your Roth IRA, the Roth contributions from your Roth 401(k) are mixed in with your Roth IRA contributions, in the same portion. Of course this money comes out first and is completely tax- and penalty-free if withdrawn at any time. It no longer comes out pro-rated. The pre-tax assets (employer contributions and its earnings) go into your Roth IRA as Conversions or more specifically "Taxable Conversion Assets" like if you convert from a regular Traditional IRA that you contributed to. This money comes out after contributions but before earnings. If you take this money out when you are under 59-1/2 (and don't meet another qualifying event) and it's been less than five years since the rollover/conversion from the your Roth 401(k), then you have the 10% penalty but no regular taxes because those were already paid when you did the conversion. If it's been at least five years since the rollover / conversion, even if you're under 59-1/2 (and don't meet another qualifying event) OR you are at least 59-1/2 (or meet another qualifying event), even it's been less than five years since the rollover/conversion, you do not pay the 10% penalty (or regular taxes) on this money. The earnings on your Roth contributions in your Roth 401(k) go into your Roth IRA as "Earnings." So if you already have a Roth IRA it'll get lumped together with the earnings you already have. This money comes out last of course. If you're under 59-1/2 (and don't meet another qualifying event) then you have regular taxes and the 10% on this money, even if it's been five years since the rollover/conversion from your Roth 401(k). If you're over 59-1/2 (or meet another qualifying event) and you haven't had a Roth IRA for five years then you have regular taxes but no 10% penalty. If you're over 59-1/2 (or meet another qualifying event) and have had a Roth IRA for at least five years then the money in this portion, as well as the rest of the account, is completely tax- and penalty-free. The five-year-rule on earnings (even earnings from a Roth 401(k)) goes by when you opened your first Roth IRA, not when the rollover/conversion took place, but the five-year-rule only applies if you're over 59-1/2 (or meet another qualifying event).

[@jinnbanshee137]

Is there any penalty or fees like 10% when I roll over from my Broth 401K to Broth IRA?

[@AllGenFinancial]

Hi Jinn, thank you so much for your question! The short answer is no, there is no penalty to rollover your Roth 401k to a Roth IRA, as long as it is a direct transfer. When you call your current 401k provider to rollover your Roth 401k you would just have them make the check to the brokerage firm where your Roth IRA is currently held. You’d also have them make the check For the Benefit of (FBO) your name. For example, if your Roth IRA was at Charles Schwab and your Roth 401k was at Fidelity, you would call up Fidelity and say “I’d like to rollover my Roth 401k to my Roth IRA at Charles Schwab.” Then, ask them to make the check out to: Charles Schwab FBO Jinn Banshee’s Roth IRA. The main thing to avoid is having the check made out to you directly and depositing that in your checking account. The check can be mailed to you (and then you send to the brokerage firm that has your Roth IRA), but it needs to be made out as I described above. Please let us know if you have any other questions! We're here to serve. 407-210-3888

[@iffatchowdhury4191]

How does roth 401k from old employer roll over to roth 401k with new employer work? Will you owe taxes the year of the rollover if you opt for this option? Will rolling over the old roth 401k to a traditional and roth ira be better?

[@AllGenFinancial]

Thank you so much for your comment Iffat! You have excellent questions regarding 401k rollovers. If your plan offered a Roth component as well as a company match, the contributions you made towards the Roth will be Roth money, and the match your employer deposited will be traditional; your plan will keep track of the amounts in each. There are no tax consequences when requesting a Roth 401k direct rollover into your new Roth 401k. Typically, it’s more desirable to rollover a previous employer 401k into an IRA or Roth IRA brokerage account because it facilitates a wider range of investment options which is still not taxable. Please let us know if you have any other questions! We're here to serve. 407-210-3888

[@iffatchowdhury4191]

@@AllGenFinancial Thank you so much!!!! Appreciate this a ton!

[@Griff_The_Griffin]

Great information, thank you.

[@AllGenFinancial]

You're very welcome!

[@Uptown_Case]

What if I already have a Roth IRA, would I still have to open up a Roth Rollover IRA if I wanted to rollover my Roth 401K?

[@AllGenFinancial]

Great question Jamal! You can use your current Roth IRA for the rollover of your Roth 401k provided your IRA custodian will accept the rollover. In fact, it is usually better to roll monies into an existing ROTH IRA account that already has 5 years in existence rather than open a new one and trigger a new 5 year rule countdown. As always, let us know if you have any other questions! We're here to help!

[@Uptown_Case]

@@AllGenFinancial thanks..... Exactly what is this 5-year you’re referring to?

[@AllGenFinancial]

@@Uptown_Case Hi Jamal! The Roth IRA five-year rule is used to determine if the earnings (interest) from your Roth IRA are tax-free. To be tax-free, you must withdraw the earnings: 1. On or after the date you turn 59½ 2. At least five tax years after the first contribution to any Roth IRA you own So if you are rolling over a Roth 401K, your 5 year rule clock starts ticking upon rollover unless you already had a preexisting Roth IRA in which you had made a previous contribution. If so, the 5 year rule clock began with that initial contribution. This can be confusing stuff and there are a few other dynamics to consider. But we are happy to chat about this further as it relates to your particular situation! You can use our contact form here to get connected for a free financial review: www.allgenfinancial.com/contact-us/