Tax implications of ROTH 401k->IRA move. Rollover vs regular in play

[anonymous2]

The situation is :

1. I've decided to move my ROTH 401k to an IRA

2. I already have ROTH IRA setup and instructed ROTH 401k custodian to send the check to be deposited into the ROTH IRA account

This is where things get interesting:

4. a) Now I'm being told that there is a difference between Rollover IRA and just the Roth IRA. Specifically Rollover IRA is a special account type that I need to open. It functions as a pre-tax account so if I move ROTH 401k money into it I'd have to keep records come tax time. The new custodian recommends using ROTH IRA, as then I'm moving money between similar account types.

   b) I was told that since my employer's contributions are pre-tax I'd have to pay income tax on the growth. Basically the old custodian will send me a 1099 in January 2024 on just the employer's contributions.

My biggest concern is point a) above. No one can give me a straight answer as to what is the correct thing to do here. Move $$ from ROTH 401k-> ROTH IRA   or ROTH 401k->rollover IRA. What are the tax implications of each? I'm concerned that come retirement time I'll be hit with a bad tax situation.

Hopefully my questions are clear and thanks to everyone in advance for their help.

[dmertz · Accepted solution]

There is no such thing as a Rollover Roth IRA.  The term Rollover IRA is an archaic term for a traditional IRA intended to  receive a rollover from the traditional account in the employer plan, an account that is not permitted to receive a rollover from a Roth 401(k) account.  To roll over the Roth 401(k) you don't need to do anything other than what you originally planned to do, deposit the check from the Roth 401(k) into the Roth IRA as a rollover.

If you want to roll over the traditional 401(k) account, you can roll that over to a traditional ("rollover") IRA to continue to defer that income.  You also have the option to roll that money over to the Roth IRA and include that amount in your current-year taxable income, treating it as a conversion to the Roth IRA.

(The term Rollover IRA was used for a special type of IRA before 2004 intended to be used as a conduit when moving funds between the traditional account in one employer plan and the traditional account in another employer plan.  Tax-code changes in 2004 eliminated the special status of a Rollover IRA, allowing pre-tax funds from any traditional IRA, except a SIMPLE IRA within the first two years of establishment of the SIMPLE IRA, to be rolled over to the traditional account in an employer plan.  Because a rollover from a Roth IRA to the designated Roth account in an employer plan has never been permitted, there is no such thing as a Rollover Roth IRA that ever could have been used as a conduit.)

[anonymous2]

thank you for amazing answer. Would give it many thumbs up if it were possible. Marked as Best Answer.

thank you!