Roth 401(k) RMDs | Ed Slott and Company, LLC

Roth 401(k) RMDs

Are the gains from the Roth 401(k) taxable if the participant is in the RMD phase of his life and the basis is now been distributed? If so, is this the reason that it is best to transfer the Roth 401(k) to a Roth IRA before RMDs begin?

The main reason to transfer designated Roth accounts to a Roth IRA prior to age 70.5 is avoidance of RMDs altogether. The ordering rules of a Roth IRA do NOT apply to Roth 401k distributions. This does not matter if the account is qualified, but if not qualified, the basis from contributions and earnings are pro rated. If a taxpayer taking RMDs has not met the 5 year requirement, part of the RMD is then going to be taxable to the extent that there are earnings in the account. As you indicated, this is another disadvantage of the Roth 401k vrs Roth IRA.

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