Roth 401(k) withdrawals
Qualified distributions from a Roth 401(k) may be taken tax free. A withdrawal is considered qualified when it is made after the account holder has attained age 59½ and a minimum of five years have elapsed since January 1 of the year of the first contribution to the Roth 401(k) account. Here’s the catch. After you retire or otherwise leave your employer, if you rollover your Roth 401(k) to a Roth IRA the time during which the assets were in the Roth 401(k) does not count toward the Roth IRA’s five year holding period.
Why you need a Roth IRA
The five-year holding period is never carried over to an individual Roth IRA upon rollover from a Roth 401(k). The Roth 401(k) funds will be governed by the five-year rule applicable to the Roth IRA. If the Roth IRA has already satisfied the five-year period, then the funds that were rolled over from the Roth 401(k) are deemed to have also met the five-year period, even if they were in the Roth 401(k) for only a year. This is why, if you choose to participate in the Roth 401(k), you should also consider establishing a Roth IRA as soon as possible either through contributions or a conversion if ineligible to contribute due to the income limits.
Qualified distributions from a Roth 401(k) may be taken tax
free. A withdrawal is considered qualified when it is made
after the account holder has attained age 59½ and a
minimum of five years have elapsed since January 1 of the
year of the first contribution to the Roth 401(k) account.
Here’s the catch. After you retire or otherwise leave your
employer, if you rollover your Roth 401(k) to a Roth IRA
the time during which the assets were in the Roth 401(k)
does not count toward the Roth IRA’s five year holding
period.
The five-year holding period is never carried over to an
individual Roth IRA upon rollover from a Roth 401(k). The
Roth 401(k) funds will be governed by the five-year rule
applicable to the Roth IRA. If the Roth IRA has already
satisfied the five-year period, then the funds that were rolled
over from the Roth 401(k) are deemed to have also met the
five-year period, even if they were in the Roth 401(k) for
only a year. This is why, if you choose to participate in the
Roth 401(k), you should also consider establishing a Roth
IRA as soon as possible either through contributions or a
conversion if ineligible to contribute due to the income
limits.