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Hello, I am 35 years old and am trying to figure out my contribution basis for my Roth IRA which includes funds rolled over from both a Roth 401k and a regular 401k with employee contributions.
In 2021, I stopped working at a company and had accumulated the following accounts:
Roth 401k (post-tax): $10k personal contributions, $3k earnings and no employer match
Traditional 401k (pretax): $5k employer matching contributions, $2k earnings
Upon leaving the company in 2021, I rolled over the full $20k from both accounts to my Roth IRA, which was already opened and had been funded separately since 2017, and I paid income taxes on the $7k from the traditional 401k. Here are my questions:
1. How much of the $20k that I rolled into my Roth IRA can I withdraw today without paying the 10% penalty?
2. Does that amount change/increase in 2026 (5 years after the rollover), or is the 5-year rule irrelevant since the Roth IRA was first contributed to in 2017 (7 years ago)?
Thank you in advance.
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1. $10k. The $10k of contribution basis in the Roth 401(k) account became contribution basis in your Roth IRAs and the $3k of earnings on that became earnings in your Roth IRAs.
2. Yes. The $7k that you rolled over from the traditional 401(k) account to the Roth IRA became Roth IRA conversion basis in 2021. As of January 1, 2026 that $7k will have completed the 5-year conversion clock, allowing that $7k to be distributed without penalty after the $10k of contribution basis has been distributed.
5-year conversion clocks are separate from the 5-year qualification clock. To be a qualified distribution from your Roth IRAs where the earnings are not longer subject to taxation, the 5-year qualification clock must be completed (which will have happened as of January 1, 2026) as well as you being age 59½ or over or disabled.
1. $10k. The $10k of contribution basis in the Roth 401(k) account became contribution basis in your Roth IRAs and the $3k of earnings on that became earnings in your Roth IRAs.
2. Yes. The $7k that you rolled over from the traditional 401(k) account to the Roth IRA became Roth IRA conversion basis in 2021. As of January 1, 2026 that $7k will have completed the 5-year conversion clock, allowing that $7k to be distributed without penalty after the $10k of contribution basis has been distributed.
5-year conversion clocks are separate from the 5-year qualification clock. To be a qualified distribution from your Roth IRAs where the earnings are not longer subject to taxation, the 5-year qualification clock must be completed (which will have happened as of January 1, 2026) as well as you being age 59½ or over or disabled.
Hi @dmertz, could I ask a slight variation of this same example?
In 2021, I stopped working at a company and had accumulated the following accounts:
Roth 401k (post-tax): $10k personal contributions, $3k earnings and no employer match
Traditional 401k (pretax): $5k employer matching contributions, $2k earnings, +$1k personal contributions
Keeping money with employer 401k, I converted the traditional portion into Roth401k in 2023. Assume earnings remained at 2k for easy math. So I paid income taxes on $8k in 2023.
Now in 2025 I am converting the Roth401k to a RothIRA with amount of $24k: $10k contributions, $8k "rollover/conversion?", $6k earnings.
Here would be my questions:
1. Is the 8k portion from 2023 a conversion? Is it available penalty free in 2028, or was the clock reset in 2025?
2. If I wait until 2030 and try to withdraw $24k, what portions could be withdrawn penalty free?
Thank you in advance,
In the time since I made my previous post there has been discussion as to whether basis in In-plan Roth Rollovers in the 401(k) upon being rolled over to a Roth IRA become conversion basis in the Roth IRA or become contribution basis in the Roth IRA. The instructions for Form 8606 say to include on line 22 "any amount rolled in from a designated Roth, [...] that is treated as investment in the contract." It would seem that investment in the contract would be all funds other than earnings (earnings being the portion that would be taxable i simply distributed), meaning that the amount of the In-plan Roth Rollover should be treated as Roth IRA contribution basis regardless of how long it had been since the IRR was done. That doesn't sit well with me because it implies that someone under age 59½ could bypass the 5-year conversion rule by moving funds from the Roth 401(k) to the Roth IRA. Of course if your are over age 59½, the 5-year conversion rule no longer applies, so it wouldn't matter whether the basis in IRRs is treated as contribution basis or conversion basis in the Roth IRA.
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