Taxation of Dividend Distribution from Roth 401(k)
Would like to know the tax treatment of dividends paid from employer shares in a Roth 401(k) plan. My unresearched opinion is that the dividends would be considered return of converted or contributed amount(s) and if the ownre is over 59.5, there would be no tax. Would appreciate confirmation/correction. Thx
Bob
Permalink Submitted by Alan Spross on Wed, 2012-02-15 21:07
There is no current taxation unless there is a distribution from the Roth 401k. Distributions from a Roth 401k are taxed according to specific rules and these rules do not differentiate according to the source of funds that are distributed. Again, if the dividends are left IN the account, there is no current taxation as with all tax deferred accounts.
If a distribution out of the Roth 401k is paid, the following tax rules apply:
If the Roth 401k is qualified (5 years and over 59.5), all distributions are tax free.
If not qualified, any distribution is pro rated between earnings and contributions, unlike Roth IRA rules.
Permalink Submitted by Robert Dyar on Wed, 2012-02-15 21:38
Alan,
Thx for quick reply.