401k roth rollover to brand new Roth IRA
Former employee, age 52, has $30,000 in her Roth 401k. Approx contribs have been $20,000 and $10,000 of earnings . She does not have an existing Roth Ira.
When she rolls all 30k into a brand new Roth Ira, is 30k her basis ?
So, it a month later, if she withdraws the whole 30k, would this be tax free? I’m sure that I am missing something.
Permalink Submitted by Alan - IRA critic on Wed, 2019-03-27 15:00
No, her Roth IRA basis is 20k. It would only be 30k if the Roth 401k was qualified which would require her to be 59.5 and have started the Roth 401k at least 5 years previously. However, this rollover will start her Roth IRA clock, so by the time she reaches 59.5 her Roth IRA will be qualified and the entire balance tax free. The 20k of Roth 401k basis will show on the 1099R issued to report the direct rollover. It is treated as regular Roth IRA contribution basis to report on Form 8606 if she takes a non qualified distribution from the Roth IRA.