A friend (age mid-40s) of mine just changed jobs and wants to get out of the old 401k due to high fees. His balance is around 200k. 70ish k of that is in roth 401k after tax contributions. The earnings balance is unknown to him, and the rest of the contributions are regular 401k contributions. His first contribution was in 2013.
If all he wanted to do was rollover to a combo of traditional and roth 401k, answers would be easy. However, he wants to take the 70k of principal contributions out to help with his moving expenses (not first-time homeowner), roll all of the pretax 401k stuff to his traditional IRA and roll the earnings on the Roth 401k contributions into his roth IRA.
I wasn't sure this was okay, and the rules seem questionable to me. I think I'm nervous because he's younger than 59.5 and his first contribution year is 4 calendar years ago. I mentioned that I thought there was a 5 year rule and he can wait till next year to do the rollover if it lets him do what he wants.
So here are my question can he withdraw the after tax contributions from a roth 401k without rolling them into a new roth IRA in this circumstance? I feel like there's a good chance he'd have to pay the penalty on the withdrawl, or if they calculate the balance pro-rata with earnings, would be taxed on the earnings proportion and get a penalty on the whole thing.
He doesn't really want to pay a tax lawyer for this info so he asked me. I'm no tax expert, but this sounds fishy. Can anyone confirm which of us is correct (or provide correct information?) Thanks!