Author Topic: Roth 401k to Roth IRA Conversion for Immediate Withdraw?  (Read 724 times)

ericrugiero

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Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« on: August 27, 2018, 07:03:24 AM »
There are many places on the internet that talk about how to get access to the funds in a 401k during early retirement without penalty.  Conventional wisdom seems to be that you do a conversion as follows.

Retire from job -> Roll from entire 401k to conventional IRA (no taxes or penalties) -> Convert expected annual expenses to Roth IRA every year (you pay taxes when you do the conversion)-> Wait 5 years -> Withdraw the funds you converted 5 years ago tax and penalty free. 

This makes a lot of sense and minimizes taxes and penalties.  However, you must have 5 years of expenses somewhere else for this to work.  My question is, can you roll a Roth 401k into a Roth IRA and start withdrawing immediately without penalty?  In looking online, it sounds like you can but nobody talks about using that route to fund the 1st five years of retirement.  The Roth 401k's are newer so maybe that is why there is limited experience with this method.  (or maybe I'm reading the limitations wrong)

If this works, my thought is I would want enough money in Roth IRA (contributions only because the growth can't be withdrawn) and Roth 401k's (I think everything rolled can be withdrawn) to fund the 1st five years of early retirement.  After that, traditional 401k using the roth IRA conversion ladder would be the most tax efficient due to the lower income I expect during retirement.   

jacoavluha

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #1 on: August 27, 2018, 08:07:48 AM »
you should consider asking your specific question over on the bogleheads forum, or just do some searching over there, I believe the character and timing of the Roth funds is maintained with the rollover (contributions versus earnings) such that Roth salary deferral within the 401k is like a contribution, but I'm not an expert. Look for answers over there from spiritrider, Alan S

FIPurpose

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #2 on: August 27, 2018, 08:14:23 AM »
You are always able to withdraw whatever money you put into a Roth 401(k). So keep track of that number somewhere

I'm not 100% on the rules, as I'm sure this is not very common. My gut tells me that a rollover would not reset the 5 year rule.

But either way, whatever money you've contributed, you'll be allowed to withdraw. Keep track of that number, and see if you can survive 5 years on it while doing IRA rollover ladders.

Rubic

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #3 on: August 27, 2018, 09:22:31 AM »
This is the article you need to read:

https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/

It explains in detail the rules you'll need to pay attention to.

less4success

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #4 on: August 27, 2018, 07:15:11 PM »
Is it just me or does the Kitces article not discuss rollovers with respect to the 5 year rule for conversions (I believe this is what the OP was asking about)?

ericrugiero

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #5 on: August 28, 2018, 08:47:42 AM »
Is it just me or does the Kitces article not discuss rollovers with respect to the 5 year rule for conversions (I believe this is what the OP was asking about)?

The article didn't directly answer what I was asking.  I'm thinking it will work but it would be nice to have confirmation.  In my case, I'm just thinking through the best (reduced taxes) way to fund the 1st 5 years of early retirement.  The roth 401k and the roth IRA will both be open for over 5 years prior to any rollover.

appleshampooid

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #6 on: August 28, 2018, 12:31:46 PM »
you should consider asking your specific question over on the bogleheads forum, or just do some searching over there, I believe the character and timing of the Roth funds is maintained with the rollover (contributions versus earnings) such that Roth salary deferral within the 401k is like a contribution, but I'm not an expert. Look for answers over there from spiritrider, Alan S
This is my understanding as well, Alan S is the guru and helped me answer a couple of questions in this thread: https://www.bogleheads.org/forum/viewtopic.php?f=1&t=69243&p=4021098

If that is all correct, then you should be able to withdraw your contributions from the newly-rolled-over Roth IRA immediately with no penalty. To figure this number, you can look at your past W2s which should have the amounts contributed to the Roth account. Also when you execute the rollover, the 1099-R should have the basis number in Box 5.

seattlecyclone

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Re: Roth 401k to Roth IRA Conversion for Immediate Withdraw?
« Reply #7 on: August 28, 2018, 01:14:21 PM »
The controlling rules are here. The answer is that when you roll a Roth 401(k) into a Roth IRA, the amount you originally contributed to the Roth 401(k) is treated identically to direct contributions to the Roth IRA: no tax or penalty at any time, and withdrawn before anything else.