I’m watching the 401k balance grow higher each year, and running some projections to see when I could retire. In the back of my mind, I always had age 55 as a benchmark, since my plan supports the Rule of 55, knowing that I could withdraw from the 401k and avoid the 10% penalty.
However my 401k includes a mix of pre-tax and Roth funds. I read this article: https://fitaxguy.com/roth-401ks-and-the-rule-of-55/
and it opened my eyes to the fact that Roth 401k withdrawals don’t play nicely with the Rule of 55. If I withdraw money between ages 55-59.5, the withdrawal will a) consist of both pre-tax and Roth funds, and b) I will still owe income tax on the earnings portion of the Roth portion.
It would be very convenient if, when I leave my employer, I roll only the Roth portion of the 401k to a Roth IRA, leaving the pre-tax balance in the 401k and available for penalty-free withdrawals. (Still subject to income tax of course.) I could keep the Roth funds in the IRA until 59.5 and avoid paying taxes on the earnings.
Is this possible? If I want to roll over some portion of the 401k, can I decide how much pre-tax vs. Roth to roll over? Or must it consist of a prorated mix of pre-tax and Roth funds, similar to what is required in a normal withdrawal? Is there a general IRS rule for this, or does it depend on my plan’s particular rules?
However my 401k includes a mix of pre-tax and Roth funds. I read this article: https://fitaxguy.com/roth-401ks-and-the-rule-of-55/
and it opened my eyes to the fact that Roth 401k withdrawals don’t play nicely with the Rule of 55. If I withdraw money between ages 55-59.5, the withdrawal will a) consist of both pre-tax and Roth funds, and b) I will still owe income tax on the earnings portion of the Roth portion.
It would be very convenient if, when I leave my employer, I roll only the Roth portion of the 401k to a Roth IRA, leaving the pre-tax balance in the 401k and available for penalty-free withdrawals. (Still subject to income tax of course.) I could keep the Roth funds in the IRA until 59.5 and avoid paying taxes on the earnings.
Is this possible? If I want to roll over some portion of the 401k, can I decide how much pre-tax vs. Roth to roll over? Or must it consist of a prorated mix of pre-tax and Roth funds, similar to what is required in a normal withdrawal? Is there a general IRS rule for this, or does it depend on my plan’s particular rules?
Statistics: Posted by mulkeytown — Mon Sep 09, 2024 12:04 pm — Replies 1 — Views 73