According to the accepted answer to this question, when you rollover a Roth 401k which contains contributions and earnings, to a Roth IRA, you don't pay any taxes.

Suppose you then withdraw from the Roth IRA the amount that was rolled over (assuming there is nothing else in the Roth IRA). Is there any tax or penalty on this withdrawal?

From what I can see in Publication 590, there is no tax on Roth IRA withdrawals of contributions or rollovers/conversions; only on earnings. As for the penalty (10% additional tax), for rollovers/conversions, it only applies within the first 5 years after the rollover/conversion, and only 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)". Since there was no tax on the rollover (from the linked answer above), no part of the rollover had to be included in income, and thus, there should be no penalty.

Is this correct? Any citations would be nice.


You're thinking that by rolling over your Roth 401(k) to Roth IRA the whole amount becomes "contribution". That is not so, you're not losing the characteristics of the amounts within the account. The grouping rules of Sec. 408A still apply, and you still need to separate contributions from earnings.

See specifically this text in the statute:

Any distribution allocated to a qualified rollover contribution under clause (ii)(II) shall be allocated first to the portion of such contribution required to be included in gross income.

So no, you do not get to withdraw earnings tax free just because you rolled them over. As a general rule, when you read the IRS pub 590 - consider your rollover from Roth 401(k) as if it was a roll-over from a different Roth IRA. But do consult a tax professional (EA/CPA licensed in your state) as there are intricacies.

You seem to be confused about various holding period limitations ("5-year rules") for Roth IRA. There are two:

  1. You cannot have qualified distributions unless you had the Roth IRA for at least 5 years.

  2. You cannot withdraw earnings on amounts from conversions without penalty (additional 10%) within the first 5 years of conversion.

These are two separate and unrelated limitations. Since you're talking about Roth 401(k) roll-over - the second one doesn't apply, since you didn't do any conversion. The first one does. See this article for in-depth discussion on this.

In any case, you pay tax (with or without the additional 10% penalty) on distribution attributed to earnings, unless it is qualified distribution.

  • "You're thinking that by rolling over your Roth 401(k) to Roth IRA the whole amount becomes "contribution"." No, I'm thinking the whole amount becomes "rollover". In Publication 590, amounts in the IRA are described as "contribution", "rollover/conversion" or "earnings". – user102008 Sep 15 '14 at 6:44
  • @user102008 yes, I get it, whatever you call it, you think that by rolling over it becomes miraculously tax free. It doesn't. The pub explains the grouping rules quite well. For roll-overs you first allocate the taxable portion (which is everything not reported on your W2 for your Roth 401(k)), and then the non-taxable portion (which is all the rest). – littleadv Sep 15 '14 at 6:46
  • You quote the grouping rules for distributing rollovers from a Roth IRA. These grouping rules are relevant because early distributions of the taxable portion of the rollover has a penalty within 5 years. That is not relevant to this question because no part of the rollover was taxable. – user102008 Sep 15 '14 at 6:49
  • @user102008 you're confusing things. 5 years limit is on qualified distributions. You cannot get qualified distributions for 5 years. – littleadv Sep 15 '14 at 6:54
  • 1
    @user102008 read again the quote. You're refusing to accept what it says because you don't want to, not because you don't understand. – littleadv Sep 16 '14 at 23:30

Your Answer

