topic Roth 401k to Roth IRA First Home Withdraw in Retirement tax questions

Roth 401k to Roth IRA First Home Withdraw

Christobal — Fri, 18 Dec 2020 05:46:24 GMT

In 2016 I left a job and rolled $50,000 from a Roth 401(k) into a Roth IRA. The account is now worth $120,000. I want to purchase a home next year. Having satisfied the 5 year rule, I can withdraw $10,000 tax and penalty free. Can I also withdraw the initial Rollover Contribution amount of $50,000 tax and penalty free for a total of $60,000?

Re: Roth 401k to Roth IRA First Home Withdraw

macuser_22 — Fri, 18 Dec 2020 06:04:47 GMT

You need to determine from your 401(k) records how much of the 401(k) Roth consisted of your own contributions. You can withdraw your own contributions from the Roth IRA both tax and penalty free. Only after all your own contributions have been withdrawn are the earnings withdrawn. The earnings, if withdrawn, and if you are under age 59 1/2 would be subject the the 10% penalty, but up to $10,000 of the earnings could be excluded if used to purchase a first home.

Re: Roth 401k to Roth IRA First Home Withdraw

Christobal — Fri, 18 Dec 2020 06:59:07 GMT

Thank you! Everything I've read has never clearly stated whether the basis rolls over from what I personally contributed to the 401k or if it all is considered contribution basis at the point of the rollover.

Re: Roth 401k to Roth IRA First Home Withdraw

dmertz — Fri, 18 Dec 2020 13:30:59 GMT

If the distribution from the Roth 401(k) would have been a qualified distribution (you met the 5-year holding period and you were age 59½ or over), the entire amount rolled over to the Roth IRA is treated as contribution basis in the Roth IRA, However, given that this question is related to a first-time homebuyer, it seems that you have not yet reached age 59½, so only the contribution basis in the Roth 401(k) rolled over to the Roth IRA would become contribution basis in the Roth IRA.

Unless you made a contribution to a Roth IRA for some year prior to 2016, you have not yet completed the 5-year holding period for the Roth IRA, so any distribution of earnings in 2020 to which you apply the first-time homebuyer exception would exempt you from the 10% early-distribution penalty but not from the income tax on the earnings. If the rollover of the Roth 401(k) to the Roth IRA established your first Roth IRA, the 5-year Roth IRA holding period began on January 1 of the year that the rollover was deposited into the Roth IRA. If that was in 2016, distributions of earnings from the Roth IRA to which the first-time homebuyer exception will be applied will also be tax free if distributed in 2021 or later.