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Say I have a Roth 401k and Roth IRA, and the Roth IRA has been open for more than 5 years.

Since early withdrawals from Roth 401(k)s are prorated between contributions and investment earnings, a portion of an early Roth 401(k) distribution is likely to be taxable. (source)

Could I transfer any money I wanted to withdraw from my Roth 401k to the Roth IRA, and withdraw from the Roth IRA to avoid the early withdrawal tax?

  • How old will you be at time of withdrawals and will you still be employed by the same employer who’s sponsoring the Roth 401(k)? – Dilip Sarwate Aug 11 at 22:17
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Yes, this should work because Roth 401(k) contributions become Roth IRA contributions upon rollover, which can always be withdrawn without tax or penalty, while the rest is earnings. You should get a Form 1099-R from your 401(k) provider showing the total and how much was contributions. The only caveat with this plan would be if you are still employed by the company, it's pretty rare to be able to do in-service rollovers of a Roth 401(k).

  • According to Pub 590b, Roth IRA distributions are generally of direct contributions first (which of course are tax-free) and then the rollover contributions in the order in which they went into the Roth IRA. So it is possible that the entire distribution from the Roth IRA will be of direct contributions and not of the rollover amount. The last sentence is the most important one: in-service rollovers of 401(k) money into IRAs of any flavor are not allowed by almost all 401(k) plans. Absent this, lots of people would roll over 401(k) money regularly to avoid the high fees (continued) – Dilip Sarwate Aug 13 at 16:36
  • ...(continued) and restricted investment choices (not to mention generally poor investment choices) that so many 401(k) plans have. – Dilip Sarwate Aug 13 at 16:42
  • @DilipSarwate Check out irs.gov/instructions/i8606#idm140149373733856: "Increase the amount on line 22 by any amount rolled in from a designated Roth account that is treated as investment in the contract." So it sounds like Roth 401(k) contributions, rolled over, become Roth IRA contributions. That also explains why Form 1099-R gives this information in Box 5; if it all counted as a rollover contribution then this would be irrelevant. – Craig W Aug 13 at 17:18

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