Designated Roth to Roth IRA Rollover

[brunele86]

Left employer in 2020. At that time I rolled my Traditional 401K amount into a Traditional IRA and my Roth 401K amount into a Existing Roth IRA. I have had the Existing Roth IRA for more than 5 years.

Is the full amount that I rolled from the Roth 401K considered a contribution to the Existing Roth IRA or only the amount that I contributed to the Roth 401K considered a contribution. Then employer match and earnings from the Designated Roth 401K now considered earnings in the existing Roth IRA. I stumbled upon this description and just looking for clarification. 

Q-3. For purposes of the ordering rules on distributions from Roth IRAs, what portion of a distribution from a rollover contribution from a designated Roth account is treated as contributions?

A-3. (a) Under section 408A(d)(4), distributions from Roth IRAs are deemed to consist first of regular contributions, then of conversion contributions, and finally, of earnings. For purposes of section 408A(d)(4), the amount of a rollover contribution that is treated as a regular contribution is the portion of the distribution that is treated as investment in the contract under A-6 of § 1.402A-1, and the remainder of the rollover contribution is treated as earnings. Thus, the entire amount of any qualified distribution from a designated Roth account that is rolled over into a Roth IRA is treated as a regular contribution to the Roth IRA. Accordingly, a subsequent distribution from the Roth IRA in the amount of that rollover contribution is not includible in gross income under the rules of A-8 of § 1.408A-6.

[DianeW777]

Perhaps the information here will provide clarification for you.  Contributions to either Roth account will always be after tax contributions.

The earnings will always be earnings regardless of whether a rollover occurs.

Note: Because you did have your Roth IRA for more than the five year rule requirement the clock will not reset for your Roth 401(k) also met this rule.  Most people might not realize that when you rollover a Roth 401(k) to a Roth IRA, the clock is reset, only if you have not met the five year rule for both accounts. 

In summary, if you make any withdrawals and you are at least 59 1/2 years of age there will be no tax consequences since you met the five year rule.

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. (IRS Publication 590b)

1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.

2. The payment or distribution is:

   1. Made on or after the date you reach age 59½,

   2. Made because you are disabled,

   3. Made to a beneficiary or to your estate after your death, or

   4. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

[Opus 17]

Under the ordering rules, contributions are first, and conversions and rollovers are second, and earnings are last.  As far as I can tell, the entire amount rolled over is considered to be the rollover, and you don't separate the rollover into a rollover of contribution and a rollover of earnings.  It's all "rollover" for the ordering rules.

@dmertz  anything further?

However, I am puzzled by the idea of a Roth 401(k) match.  Your employer can't match funds in an after-tax plan unless they include the money in your W-2 taxable wages, subject to federal, state, social security and medicare withholding.  Normally, the employee match is pre-tax and goes into a pre-tax account even if you choose to make your own contributions to an after-tax account.  Can you clarify this?

[macuser_22 · Accepted solution]

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@brunele86 wrote:

Left employer in 2020. At that time I rolled my Traditional 401K amount into a Traditional IRA and my Roth 401K amount into a Existing Roth IRA. I have had the Existing Roth IRA for more than 5 years.

Is the full amount that I rolled from the Roth 401K considered a contribution to the Existing Roth IRA or only the amount that I contributed to the Roth 401K considered a contribution. Then employer match and earnings from the Designated Roth 401K now considered earnings in the existing Roth IRA. I stumbled upon this description and just looking for clarification. 

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A rollover is NOT a new contribution.     If you have after-tax contributions to the designated Roth then that becomes part of your existing Roth IRA's "basis".    That amount should be shown in box 5 on the 1099-R for the rollover.   

If you have met the 5 year rule for ANY Roth IRA account, then that applies to all Roth IRA accounts.    Rolllovers have no effect.

[macuser_22]

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@Opus 17 wrote:

@dmertz  anything further?

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@dmertz has not posted since May 2021 - suddenly disappeared without explanation.

[Opus 17]

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@macuser_22 wrote:

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@Opus 17 wrote:

@dmertz  anything further?

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@dmertz has not posted since May 2021 - suddenly disappeared without explanation.

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Oh my.  Hope they just found something better to do.

Cheers. 

[brunele86]

To clarify regarding the match - I mispoke. That is correct. The match went into my traditional 401K account, not the Roth 401k account. 

[Opus 17]

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@brunele86 wrote:

To clarify regarding the match - I mispoke. That is correct. The match went into my traditional 401K account, not the Roth 401k account. 

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Perfect.

As I said, if you rollover your Roth 401(k) to a Roth IRA, the money will be tracked as a "rollover" by the custodian.  It does not count as a contribution toward your annual contribution maximum.  And when you withdraw money, the ordering rules say you withdraw contributions first, rollovers second, and earnings last.  The Roth IRA custodian does not have to keep track of whether the Roth 401(k) funds were contributions or earnings. 

[brunele86]

Got it. Found the form and the amount. That answers the question. Thank you