Roth 401k Rollover to Roth IRA and the 5 Year Aging Clock with Multiple Roth IRAs
I am 66 years old and retired last year in 2020. Our workplace 401k is with Fidelity Investments. I have begun direct 401k and Roth 401K rollovers from my Company plan to Fidelity’s retail side of the business. The 401k rollovers are to Fidelity Rollover IRA and the Roth 401k to a Fidelity Roth IRA account. I have two Roth 401K accounts remaining with the Company’s plan; one the Roth 401K and another called a catch-up Roth 401K account. I opened a Fidelity Roth IRA in 2020, to rolled over after- tax dollars (as a back door Roth). I plan to complete the Roth 401K account rollovers in next two years to the same Fidelity Roth IRA account.
FYI, I also established my first Roth IRA with T Rowe Price back in 2008 to invest my Roth contributions in my earlier working years.
My question, if I subsequently make a distribution from the Fidelity Roth IRA before the year 2025; are my distributions still classified as qualified distributions since my “first” Roth IRA with T Rowe Price meets the 5 year aging requirement (& I’m over 59.5)? And doesn’t matter that the rollover funds reside in my Fidelity Roth IRA and separately have not met the 5 year aging period? Sincerely.
Permalink Submitted by Alan - IRA critic on Wed, 2021-05-05 23:16
Your Roth IRA is fully qualified, and all distributions will be tax free. You no longer have to keep any basis records since Form 8606 is not needed to report distributions. However, I would keep one document (perhaps a 5498) showing that you had a Roth IRA before 2017.
Based on several recently reported disasters, be very sure that your Roth 401k money ends up in a Roth IRA, and your pre tax 401k money ends up in a TIRA (unless you want to do a taxable rollover of this money to a Roth IRA). Report any errors immediately. It is quite the disaster if your Roth 401k money ends up in your TIRA in error. So check that the various 401k balances end up in the correct IRA account.
Permalink Submitted by Donald Diotallevi on Thu, 2021-05-06 17:53
Thank you for the quick response! Your first comment on “showing that a Roth IRA before 2017” What is special about the year 2017.
Permalink Submitted by Alan - IRA critic on Thu, 2021-05-06 19:33
Any (legal) contribution made prior to 2017 will have automatically met the 5 year holding period toward qualification. If your first Roth contribution was in 2017, it will not have met the 5 year holding period until 1/1/2022. Based on the date you supplied in your initial post, you met the 5 year holding period on 1/1/2013 but reached 59.5 somewhat later. Therefore, your Roth IRA became qualified on the day you reached 59.5. Any non qualified Roth 401k balance rolled into a qualified Roth IRA becomes immediately qualified. You should plan to have any Roth 401k balance rolled into your qualified Roth IRA before the year you reach 72 to prevent the Roth 401k balance from becoming subject to RMDs – no RMD once rolled to the Roth IRA.