I left an employer having both a Traditional and Roth 401(k). The entire Traditional 401(k) amount, and the 'earnings' from my Roth 401(k) were directly rolled over to my new Roth 401(k) account at my new employer. However, I received a separate check from that rollover paid out directly to me - this amount are the 'nontaxable contributions' I've made to my Roth 401(k) plan.
My question is... Can I cash this check without penalties and keep it for myself? Aon Hewitt (former 401k administrator) stated that they check is mine to do as I please and would not incur any penalties or taxes. I understand I would not get taxes taken out, but not sure if the 10% penalty would become effective - as this is solely my contributions and not my earnings I would be keeping. Or any other penalties that I am unaware of.
The check that you received consisting of your contributions to the Roth 401(k) is tax and penalty free.
See CFR 1.402A-1 Q&A 5 which was recently updated to permit such treatment of split simultaneous distributions: https://www.law.cornell.edu/cfr/text/26/1.402A-1
Ok ... so you rolled over the entire 401K AND just the earnings of the ROTH 401K and not the contributions ? And you got a check for the contributions?
All 401(k) accounts include a traditional account. Hopefully the entire traditional 401(k) amount was rolled over to the traditional account of the new employer's 401(k) and the earnings portion of the Roth 401(k) was rolled over to the Roth account of the new employer's 401(k). A distribution from the traditional account of one 401(k) plan is not permitted to be rolled over to the Roth account of a different 401(k) plan. A taxable rollover from a traditional 401(k) account to a Roth 401(k) account is only permitted in-plan.
Thanks for all the feedback/questions - Hopefully my responses can provide more clairity...
@Opus 17 - The Roth 401k was open for 3 years (I am also under 59.5)
@Critter#2 - Correct; The entire 401k was rolled, along with the earning of the Roth 401k. The check in the mail was the Roth contributions (amount excluding earnings)
@dmertz - Yes - thanks for the clarification. The entire traditional 401k amount was rolled over to the traditional account of the new employer's 401k and the earnings portion of the Roth 401k is to be rolled over to the Roth account of the new employer's 401(k)
The check that you received consisting of your contributions to the Roth 401(k) is tax and penalty free.
See CFR 1.402A-1 Q&A 5 which was recently updated to permit such treatment of split simultaneous distributions: https://www.law.cornell.edu/cfr/text/26/1.402A-1