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SB-in-CA
New Member

Leaving job at 55 and taking distribution of Roth 401k. What are the tax implications

Roth 401k, over 5 years

5 Replies
Opus 17
Level 15

Leaving job at 55 and taking distribution of Roth 401k. What are the tax implications

How long has the Roth 401k been open?
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
SweetieJean
Level 15

Leaving job at 55 and taking distribution of Roth 401k. What are the tax implications

"over 5 years"
dmertz
Level 15

Leaving job at 55 and taking distribution of Roth 401k. What are the tax implications

A distribution from your Roth 401(k) made before you reach age 59½ is not a qualified distribution regardless of how long you have had the account.

Distributions from a Roth 401(k) are a prorated mix of original contributions and earnings.  The portion that is a return of your original contributions is not taxable.  Since you will be age 55 when you leave the job, the portion that is earnings in any distribution that you make from this employer's Roth 401(k) after leaving the job but before you reach age 59½ will be subject to ordinary income tax, but will not be subject to an early-distribution penalty.  The distribution will qualify for the age-55 penalty exception.

After you reach age 59½, since it will be more than 5 years since the beginning of the year in which you first made a contribution to this Roth IRA, any distributions will then be qualified distributions, entirely tax and penalty free.

dmertz
Level 15

Leaving job at 55 and taking distribution of Roth 401k. What are the tax implications

For nonqualified distributions from the Roth 401(k), you have the option to roll the earnings portion over to a Roth IRA to avoid the tax on the earnings.  Once you have reached age 59½ and it has been at least 5 years from the beginning of the year for which you first made a Roth IRA (not Roth 401(k)) contribution, distributions from the Roth IRA will be qualified distributions, tax and penalty free.
sassyreyes07
New Member

Leaving job at 55 and taking distribution of Roth 401k. What are the tax implications

21 years

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