topic Re: nonqualified ROTH to in Retirement tax questions

nonqualified ROTH vs non

rathail — Sat, 07 Nov 2020 15:09:00 GMT

I'm 60 and retired. I've had a E*Trade ROTH for 10 yrs. In my company 401K I've converted some fund to the ROTH side. I would like to move the ROTH funds to the E*Trade ROTH but they say it is unqualified for 3 or 4 yrs depending on when the conversion was done. Well, the 3 yrs was after tax funds 4 years for conversion.

I will be doing more conversion to a desired amount before RMDs happen.

Are any new conversion qualified after the 4 yr time frame?

Why can't I move the funds to my fund to a qualified ROTH?

Re: nonqualified ROTH vs non

macuser_22 — Sat, 07 Nov 2020 17:19:05 GMT

@rathail wrote:

I'm 60 and retired. I've had a E*Trade ROTH for 10 yrs. In my company 401K I've converted some fund to the ROTH side. I would like to move the ROTH funds to the E*Trade ROTH but they say it is unqualified for 3 or 4 yrs depending on when the conversion was done. Well, the 3 yrs was after tax funds 4 years for conversion.

I will be doing more conversion to a desired amount before RMDs happen.

Are any new conversion qualified after the 4 yr time frame?

Why can't I move the funds to my fund to a qualified ROTH?

You are confusing several things:

1) Each conversion has it's own 5 year waiting period before the "earnings" can be withdrawn without a 10% penalty. There is no restriction on removing your own prior contributions. However, being over age 59 1/2 makes the 5 year rule a moot point because being over 59 1/2 is an automatic exception to the penalty.

2) "Moving" the Roth to another financial institution is not a distribution subject to the 5 year rule, it is a rollover that can always be done. You would simply have the 401(K) Roth trustee do direst rollover to your Roth IRA and you never see the money.

3) Roth accounts (other than inherited Roth's) do not have a RMD, only Traditional 401(k) plans and Traditional IRA's have a RMD.

Re: nonqualified ROTH vs non

Critter-3 — Sat, 07 Nov 2020 17:23:56 GMT

They can allow the rollover however they are correct there are ordering rules for distributions from the account. The record of the conversion from the 401K to the ROTH 401K then subsequent roll to a ROTH must be kept so when the withdrawals happen they can be dealt with correctly.

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

Re: nonqualified ROTH to

rathail — Sat, 07 Nov 2020 18:17:45 GMT

Thanks,

What you are stating is what I understand to be true. But the 401K admin is stating I can't roll my 401K-ROTH funds until qualified, 4 more years. and then 5 years after each conversion.

My understanding as far as the RMD for 401K-ROTH goes if I leave the funds in they are subject to RMD distribution at, currently 72. If I move them out no RMDs.

Re: nonqualified ROTH vs non

Critter-3 — Sat, 07 Nov 2020 18:17:23 GMT

The 401K administrator have rules they must follow ... so if you are still employed there you may not have a choice in the matter. Seek assistance with this matter ... talk to the ROTH administrator on how to proceed.

Re: nonqualified ROTH vs non

rathail — Sat, 07 Nov 2020 18:29:48 GMT

I'm retired and 60.

Yes I do need to call to them. Not by email, they never seem to get the question and the answers are lacking.

Re: nonqualified ROTH vs non

Critter-3 — Sat, 07 Nov 2020 18:30:06 GMT

If you are retired then they cannot hold your account hostage ... you have the right to roll it even if you have to open a second Roth account.

Re: nonqualified ROTH vs non

tbrown21 — Sat, 07 Nov 2020 18:55:04 GMT

@macuser_22 The 5 year rule applies no matter your age. this from pub 590-B:

What Are Qualified Distributions?

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

It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
The payment or distribution is:
1. Made on or after the date you reach age 59½,
2. Made because you are disabled (defined earlier),
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

Re: nonqualified ROTH vs non

macuser_22 — Sat, 07 Nov 2020 20:04:00 GMT

If the 5 year rule is not met then distributions of "earnings" can be taxable but is not subject to the 10% early distribution penalty when over 59 1/2. None of that applies to rollovers which is what the poster was asking about.

It also says:

Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that aren't qualified distributions.

Exceptions.

You may not have to pay the 10% additional tax in the following situations.

You have reached age 59½.

Re: nonqualified ROTH vs non

macuser_22 — Sat, 07 Nov 2020 21:36:23 GMT

@macuser_22 wrote:

If the 5 year rule is not met then distributions of "earnings" can be taxable but is not subject to the 10% early distribution penalty when over 59 1/2. None of that applies to rollovers which is what the poster was asking about.

It also says:

Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that aren't qualified distributions.

Exceptions.

You may not have to pay the 10% additional tax in the following situations.

You have reached age 59½.

I will also note that the 5 year rule for *conversions* is different than the 5 year rule for *contributions*. The 5 year rule for contributions applies at any age, however, the contribution is for ANY Roth IRA and the 5 year clock starts when the very first Roth contribution was made. Since the poster said that a Roth IRA has existed for 10 years then the 5 year rule has been met.

Re: nonqualified ROTH vs non

dmertz — Sat, 07 Nov 2020 22:36:42 GMT

Your Roth IRAs are already qualified since you are over age 59½ and you made your first contribution to a Roth IRA more than 5 years ago. This means that ANY regular distribution from your Roth IRAs is a qualified distribution, including any distribution of funds moved from your Roth 401(k) to the Roth IRA, tax and penalty free. Qualification of the Roth 401(k) is irrelevant to whether distributions from your Roth IRA are qualified distributions.

If you take a distribution from the Roth 401(k) and do not roll it over to a Roth IRA, because you have not met the 5-year holding requirement for distributions from the Roth 401(k) to be qualified distributions, some portion of the distribution from the Roth 401(k) would be taxable. But simply rolling all of that distribution over to the Roth IRA and then taking a distribution from the Roth IRA means that nothing will be taxable. You would want to avoid mandatory tax withholding on the otherwise taxable portion of the distribution from the Roth 401(k) by requesting a direct rollover to the Roth IRA where the funds are paid directly to your Roth IRA, not to you personally.