Open TurboTax

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
Your taxes, your way. Get expert help or do it yourself. >> Get started
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

cancel
Showing results for 
Search instead for 
Did you mean: 
hola9393
Level 1

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

In other words, does the rollover from a Roth 401k to fund the Roth IRA start the 5-years period required for a Roth IRA distribution to be qualified (i.e. tax and penalty free), which means that such distribution should meet the following conditions: be made after (1) 59.5 years of age AND (2) 5-yrs from first contribution to the Roth IRA account?

9 Replies
macuser_22
Level 15

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

Yes it is.  See IRS Pub 590B

https://www.irs.gov/publications/p590b#en_US_2020_publink1000231065

 

[quote]

Distributions of conversion and certain rollover contributions within 5-year period.

If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or roll over an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You must generally pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions, later, to determine the recapture amount, if any.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
hola9393
Level 1

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

Thanks for the reply. However, I think the 5-year period referred to in this section of Pub 590b is for purposes of defining whether taxes and/or penalties apply to a given distribution following a conversion or roll over. Such 5-year period I think is different from the 5-year period criteria used to determine whether a distribution is a "qualified distribution" or not, which is what I am trying to understand. Publication 590b defines a "Qualified Distribution" as:

"A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements:

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:

a. Made on or after the date you reach age 59.5...[...]"

Question: is a roll over from a Roth 401k considered a "contribution" for purposes of satisfying the condition in point (1) above?

macuser_22
Level 15

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?


@hola9393 wrote:

Thanks for the reply. However, I think the 5-year period referred to in this section of Pub 590b is for purposes of defining whether taxes and/or penalties apply to a given distribution following a conversion or roll over. Such 5-year period I think is different from the 5-year period criteria used to determine whether a distribution is a "qualified distribution" or not, which is what I am trying to understand. Publication 590b defines a "Qualified Distribution" as:

"A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements:

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:

a. Made on or after the date you reach age 59.5...[...]"

Question: is a roll over from a Roth 401k considered a "contribution" for purposes of satisfying the condition in point (1) above?


Yes, there are two 5 year periods.  One as yiu state and one applies to rollovers and conversions.  That is why the TurboTax 1099-R interview for distributions ask if there was a rollover or conversion and what year it took place in to determine if the 5 year rule was met.

 

The ordering rules for Roth distribution state your regular Roth contributions are removed first that are always tax free, then rollovers/conversions and finally any earnings.

 

If you receive a distribution from your Roth IRA that isn't a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed under What if You Contribute Too Much? in chapter 2 of Pub. 590-A). Order the distributions as follows.

  1. Regular contributions.

  2. Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion and rollover contributions into account as follows.

    1. Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first.

    2. Nontaxable portion.

  3. Earnings on contributions.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

Just to clarify - maybe I am misunderstanding you.  If you roll an Roth 401(k) into *an existing* Roth IRA that has *already* met the 5 year clock then the Roth 5 year holding period applies to *all* funds in the account, including any that were rolled from the Roth 401(k).

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
hola9393
Level 1

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

Thanks again. Still, I have not been able to clarify my question. Let me illustrate with couple of examples:

Example 1: I am 50 years old today, I will open a Roth IRA next month and simultaneously fund the account with a roll-over from my Roth 401k to my Roth IRA. Those would be the only funds I will deposit in the Roth IRA ever.

Question 1: based on this example, at age 60, would a distribution from this Roth IRA account be considered a "qualified distribution" (i.e. would have no penalties and/or taxes on such distribution)?

 

Example 2: take example 1 mentioned above, and let's assume that I do another roll-over from my Roth 401k to my Roth IRA at age 58.

Question 2: again at age 60, would a distribution of the total balance of the Roth IRA account (which would include (1) the initial roll-over mentioned in example 1, and (2) the roll-over mentioned in example 2 at age 58) considered a "qualified distribution"?

 

Note couple of things:

1) Assume distributions in both examples would include everything (funds originally contributed, earnings associated to such funds, etc)

2) Contribution referred to in "Example 1" is a roll-over and not a "regular" contribution.

 

Appreciate any information you can share!

macuser_22
Level 15

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?


@hola9393 wrote:

Thanks again. Still, I have not been able to clarify my question. Let me illustrate with couple of examples:

Example 1: I am 50 years old today, I will open a Roth IRA next month and simultaneously fund the account with a roll-over from my Roth 401k to my Roth IRA. Those would be the only funds I will deposit in the Roth IRA ever.

Question 1: based on this example, at age 60, would a distribution from this Roth IRA account be considered a "qualified distribution" (i.e. would have no penalties and/or taxes on such distribution)?

 

Example 2: take example 1 mentioned above, and let's assume that I do another roll-over from my Roth 401k to my Roth IRA at age 58.

Question 2: again at age 60, would a distribution of the total balance of the Roth IRA account (which would include (1) the initial roll-over mentioned in example 1, and (2) the roll-over mentioned in example 2 at age 58) considered a "qualified distribution"?

 

Note couple of things:

1) Assume distributions in both examples would include everything (funds originally contributed, earnings associated to such funds, etc)

2) Contribution referred to in "Example 1" is a roll-over and not a "regular" contribution.

 

Appreciate any information you can share!


See the "ordering rules", figure 2-1 in IRS Pub 590-B.

https://www.irs.gov/publications/p590b#en_US_2020_publink1000231071

 

It makes no difference how the money gets into a *new* Roth IRA if you have not owned any Roth IRA for 5 years.   Notice that the 5 year rule bypasses the age test.   It is not qualified if 5 years have not passed regardless of age. 

 

The "basis" in the Roth is not subject to tax or penalty but any earnings withdrawn can be.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

A bit of additional information.

 

 

The 1099-R for the Roth 401(k) that you rolled into the Roth IRA should show your "basis" in box 5.

 

When you take a distribution form the Roth IRA is less than 5 years then the 1099-R for that distribution should have a code T in box 7 that means that Roth custodian knows you are over 59 1/2 but does not know if you owned any other Roth IRA for 5 years or more (they know you have not owned the Roth that they have, but do not know about any other Roth's that you might own with other custodians).  Once you own that Roth for 5 years then box 7 will have a code Q which is never taxable.

 

TurboTax asks if you owned any Roth for more then 5 years and then asks for your prior contribution which would be the box 5 amount form the Roth 401(k) rollover.    Only the amount withdrawn more then that would be taxable.

 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?


@hola9393 wrote:

Thanks again. Still, I have not been able to clarify my question. Let me illustrate with couple of examples:

Example 1: I am 50 years old today, I will open a Roth IRA next month and simultaneously fund the account with a roll-over from my Roth 401k to my Roth IRA. Those would be the only funds I will deposit in the Roth IRA ever.

Question 1: based on this example, at age 60, would a distribution from this Roth IRA account be considered a "qualified distribution" (i.e. would have no penalties and/or taxes on such distribution)?

 

Example 2: take example 1 mentioned above, and let's assume that I do another roll-over from my Roth 401k to my Roth IRA at age 58.

Question 2: again at age 60, would a distribution of the total balance of the Roth IRA account (which would include (1) the initial roll-over mentioned in example 1, and (2) the roll-over mentioned in example 2 at age 58) considered a "qualified distribution"?

 

Note couple of things:

1) Assume distributions in both examples would include everything (funds originally contributed, earnings associated to such funds, etc)

2) Contribution referred to in "Example 1" is a roll-over and not a "regular" contribution.

 

Appreciate any information you can share!


Example #1 - The funds would have been on the Roth for more than 5 Years so they would be qualified.   No tax or penalties whatsoever for any distribution.

 

Example #2 - Again no tax or penalty since the 5 year rule had already been met.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
hola9393
Level 1

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

This makes it clear. Thanks very much!

About Community

Learn about taxes, budgeting, saving, borrowing, reducing debt, investing, and planning for retirement.

3.48m
Members

2.61m
Discussions

Manage cookies
v