Question

Is a rollover from a Roth401k to fund a Roth IRA considered a contribution for purposes of the 5-yr period required to distribute tax/penalty free money after 59.5yrs?

Forum|Forum|4 years ago
September 3, 2021
1 reply
0 views

In other words, does the rollover from a Roth 401k to fund the Roth IRA start the 5-years period required for a Roth IRA distribution to be qualified (i.e. tax and penalty free), which means that such distribution should meet the following conditions: be made after (1) 59.5 years of age AND (2) 5-yrs from first contribution to the Roth IRA account?

TurboTax Online

macuser_22

Employee

Yes it is. See IRS Pub 590B

https://www.irs.gov/publications/p590b#en_US_2020_publink1000231065

[quote]

Distributions of conversion and certain rollover contributions within 5-year period.

If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or roll over an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You must generally pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions, later, to determine the recapture amount, if any.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

H

hola9393Author

Thanks for the reply. However, I think the 5-year period referred to in this section of Pub 590b is for purposes of defining whether taxes and/or penalties apply to a given distribution following a conversion or roll over. Such 5-year period I think is different from the 5-year period criteria used to determine whether a distribution is a "qualified distribution" or not, which is what I am trying to understand. Publication 590b defines a "Qualified Distribution" as:

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

1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a
Roth IRA set up for your benefit.

2. The payment or distribution is:

a. Made on or after the date you reach age 59.5...[...]"

Question: is a roll over from a Roth 401k considered a "contribution" for purposes of satisfying the condition in point (1) above?

macuser_22

Employee

@hola9393 wrote:

Thanks for the reply. However, I think the 5-year period referred to in this section of Pub 590b is for purposes of defining whether taxes and/or penalties apply to a given distribution following a conversion or roll over. Such 5-year period I think is different from the 5-year period criteria used to determine whether a distribution is a "qualified distribution" or not, which is what I am trying to understand. Publication 590b defines a "Qualified Distribution" as:

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

1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a
Roth IRA set up for your benefit.

2. The payment or distribution is:

a. Made on or after the date you reach age 59.5...[...]"

Question: is a roll over from a Roth 401k considered a "contribution" for purposes of satisfying the condition in point (1) above?

Yes, there are two 5 year periods. One as yiu state and one applies to rollovers and conversions. That is why the TurboTax 1099-R interview for distributions ask if there was a rollover or conversion and what year it took place in to determine if the 5 year rule was met.

The ordering rules for Roth distribution state your regular Roth contributions are removed first that are always tax free, then rollovers/conversions and finally any earnings.

If you receive a distribution from your Roth IRA that isn't a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed under What if You Contribute Too Much? in chapter 2 of Pub. 590-A). Order the distributions as follows.

Regular contributions.
Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion and rollover contributions into account as follows.
1. Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first.
2. Nontaxable portion.
Earnings on contributions.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**