Author Topic: True that Roth 401k withdrawals don't affect MAGI?  (Read 731 times)

RedwoodDreams

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True that Roth 401k withdrawals don't affect MAGI?
« on: October 27, 2018, 01:32:24 PM »
Hi -- I have to be very careful with our MAGI so as not to mess up our ACA subsidy or lose my son's Medi- Cal coverage... I have about $4700 in my 401k in the Roth bucket that I would love to withdraw (I'm eligible to withdraw from my 401k now without penalty due to the Rule of 55, btw.) I thought I read somewhere that Roth withdrawals don't affect MAGI... Anyone know? I assume the withdrawal needs to be noted somewhere on the 1040, just not in the taxable amount column?

Thanks for any wisdom.

seattlecyclone

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #1 on: October 27, 2018, 02:11:13 PM »
True. If it doesn't count as taxable income (which it wouldn't unless it's an early withdrawal of earnings), it doesn't count toward your MAGI for ACA purposes.

MMbergmann

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #2 on: October 27, 2018, 05:33:56 PM »
However, there are other items that go on a 1040 that do affect MAGI for ACA purposes, such as tax exempt interest income. Just dont want people to be confused like the previous poster was making a generalization.

terran

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #3 on: October 27, 2018, 08:43:57 PM »
Also note that the IRS doesn't require that your employer lets you withdraw from your 401(k) as long as you separate from service in or after the year you turn 55, they simply allow it. Whether or not your former employer allows it is up to them.

seattlecyclone

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #4 on: October 28, 2018, 10:20:40 AM »
Also note that the IRS doesn't require that your employer lets you withdraw from your 401(k) as long as you separate from service in or after the year you turn 55, they simply allow it. Whether or not your former employer allows it is up to them.

I'm not sure this is true. They have to let you remove your money from your 401(k) after you leave the company. The tax treatment of that withdrawal wouldn't be under the company's control, would it?

What they do definitely have control over is how many withdrawals you can take. A lot of companies don't want to deal with former employees making regular withdrawals from the plan, so they structure their plan to meet the bare minimum requirements: you can keep your money in there as long as you want, but the second you take out even a penny you have to close your account and take your money elsewhere. You can of course roll whatever you're not going to spend soon into an IRA so your savings maintains its tax-deferred status, but once it's in an IRA it doesn't qualify for the age 55 rule anymore.

If you're planning to take advantage of the age 55 rule for a large portion of your spending from 55 to 60, best to read the fine print on your 401(k) documents to make sure it's allowed. If you only have $4,700 that you want to take out, all in one year, I'm not sure there's much the company can do about it so long as you're willing to roll the rest into an IRA if needed.

terran

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #5 on: October 28, 2018, 08:35:56 PM »
@seattlecyclone, I think you're right that it's not the tax treatment, but rather the withdrawal options that are up to your employer and could thwart and otherwise viable plan to withdraw penalty free from that plan between the ages of 55 and 59.5.

Acastus

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #6 on: October 29, 2018, 03:39:43 PM »
True. If it doesn't count as taxable income (which it wouldn't unless it's an early withdrawal of earnings), it doesn't count toward your MAGI for ACA purposes.

One small area that counts as income is interest from tax free bonds. This is specifically for the ACA MAGI.

seattlecyclone

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #7 on: October 29, 2018, 04:00:40 PM »
True. If it doesn't count as taxable income (which it wouldn't unless it's an early withdrawal of earnings), it doesn't count toward your MAGI for ACA purposes.

One small area that counts as income is interest from tax free bonds. This is specifically for the ACA MAGI.

Sure. To clarify, the "it" in the quoted post was referring specifically to withdrawals from Roth retirement accounts, and not to all the other types of tax-free income that may or may not be added back into the ACA MAGI.

RedwoodDreams

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #8 on: October 31, 2018, 10:48:35 AM »
Thanks, everyone!

jim555

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Re: True that Roth 401k withdrawals don't affect MAGI?
« Reply #9 on: November 01, 2018, 01:16:25 PM »
If the withdrawal is post 59.5 it is totally untaxed.  Pre 59.5 only the contributions can be withdrawn tax free, if they have been seasoned for 5 years.