Updates

Eli Lilly Employees: Got A Roth 401(k)? You Should Know This

Feb 21st, 2018

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.

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