I have a few questions regarding the various rules regarding ROTH IRA’s:
Background: I am age 67 (well actually 66 and 11 months young), opened a Roth IRA in 1999 which has been funded each year since with the maximum I was allowed to contribute. Several years ago I switched my work 401k contributions so a portion was funding the newly allowed Roth 401k.
Current: I retired 3 weeks ago. I would like to roll the Roth 401k monies to a Roth IRA. Several questions I have revolve around the timing aspects that I have read here regarding availability of Roth funds in a 401k to IRA situation. Fortunately I have no need for these monies in the short term but I want to ensure I fully understand all of the rules. Another consideration I have is that I do plan on making some pre-tax IRA to Roth IRA conversions.
So my thoughts are to open another Roth IRA account at Fidelity. This account will be funded with the rollover from my Roth 401k. Fidelity also holds an IRA (pretax) of mine that I want to move some securities from into the Roth. Is it OK to mingle the 401k rollover with the pretax conversion to Roth funds? What else should I be aware of regarding this? What sort of records do I need to maintain?
I hope that is all clear; any questions or comments are very welcome. Just note that my replies will probably not be immediate as I am currently on a cruise to Bermuda. I am enjoying retirement.
I am age 67 (well actually 66 and 11 months young), opened a Roth IRA in 1999
So you meet the requirements for qualified distributions from a Roth IRA, being at least 59 1/2 and having had a Roth IRA open and funded for at least 5 years.
I retired 3 weeks ago.
Congratulations!
I would like to roll the Roth 401k monies to a Roth IRA. . . . I have no need for these monies in the short term
That’s probably a good idea, since Roth 401(k)s have RMDs, while Roth IRAs do not. If you left funds in the Roth 401(k), you would be forced to start taking them out in the year that you reach 72. That may or may not be ‘short term’ for you, but, since you’ve met the criteria for qualified distributions, nothing prevents you from taking money out of a Roth IRA whenever you want to - short term or long term.
Is it OK to mingle the 401k rollover with the pretax conversion to Roth funds?
Yes. Once you have met the criteria for qualified distributions, there are no restrictions on withdrawing conversions, like there are prior to meeting those criteria. That said, the IRS looks at all of your Roth IRA accounts as a single Roth ‘Individual Retirement Arrangement’ (not Account) - so even if you were to try to segregate the money by keeping it in separate accounts, from a tax/withdrawal perspective, the IRS will treat them as if they are all in the same account. So there’s not really much of a point in having Roth IRAs at different brokerages, other than personal preference.
What sort of records do I need to maintain?
You will get 1099-R documents that will show both the rollover and the conversion. You will need those to file your taxes.
Just note that my replies will probably not be immediate as I am currently on a cruise to Bermuda. I am enjoying retirement.
What are you doing even asking these questions while you’re on a cruise? LOL - have a great time!
Thank you AJ for your response. I think I had remembered some previous discussions that referenced 5 year waiting periods to be able to access the earnings portion of the Roth balances following certain actions.
But if I understand you correctly, because I am old enough and the Roth has existed long enough (meaning I have met the criteria for qualified distributions) I can do as I please with any of my Roth balances?
Thank you again. Now back to retirement mode for me.
But if I understand you correctly, because I am old enough and the Roth has existed long enough (meaning I have met the criteria for qualified distributions) I can do as I please with any of my Roth balances?