Roth 401k Rollover to Roth IRA early distribution
If a rollover from 10+ year Roth 401k occurs to new Roth IRA and 60 yr old client has never opened a Roth IRA before, but then has to take early distribution from the Roth IRA before the 5 years are up, is the potential penalized earnings from the date of rollover or does it go back into the attributable Roth 401k earnings that were rolled? And if they don’t look that far back, it is only the earnings above the rollover amount that is ever penalized, right? thanks in advance
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-28 22:21
Since the Roth 401k was qualified (5+ years and age 59.5) at the time of the rollover, the entire value of the rollover will be treated as a regular Roth IRA contribution under the Roth IRA ordering rules. That amount can be distributed anytime without tax or penalty. However, any earnings within the Roth IRA will be taxable upon withdrawal until the Roth IRA itself has met the 5 year holding requirement. There will be no penalty even if the Roth IRA gains are taxed if withdrawn (they come out last) since client is 59.5.