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I understand that withdrawals from Roth 401K's are allowed up to your contribution without penalty since these are after tax dollars.

Is there a limit on the frequency of such withdrawals?

Presume that you have a company match. If you contribute into a Roth 401K (securing the company match) could you then just withdraw the contribution?

EDIT: The case I'm wondering about is that even if you don't feel that you can save any money you should still use this maneuver to get money in the match. Let's say you have a 20% match... You contribute $1000 to Roth. Your company matches $200 to traditional. You withdraw $1000 from Roth. Net $200

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  • In my company, the company-match portion goes into the non-Roth side of the 401k. I'm not sure whether that's mandated or not, but I've always assumed it's specifically to prevent this maneuver.
    – keshlam
    Commented Oct 31, 2014 at 16:32
  • Why would you do that?
    – littleadv
    Commented Oct 31, 2014 at 16:42
  • The company match goes into non-Roth. That's true. But I can contribute to Roth, get the company match into the traditional, then withdraw my Roth.
    – Matthew
    Commented Oct 31, 2014 at 16:42
  • @keshlam company match is always pre-tax.
    – littleadv
    Commented Oct 31, 2014 at 16:43
  • 2
    I think you are confusing Roth IRA with Roth 401k. Roth IRA allows withdrawals of contributions, 401k's have penalties with withdrawals.
    – Matt R
    Commented Oct 31, 2014 at 18:02

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Back in the late 80's I had a co-worked do exactly this. In those days you could only do things quarterly: change the percentage, change the investment mix, make a withdrawal..

There were no Roth 401K accounts, but contributions could be pre-tax or post-tax. Long term employees were matched 100% up to 8%, newer employees were only matched 50% up to 8% (resulting in 4% match).

Every quarter this employee put in 8%, and then pulled out the previous quarters contribution. The company match continued to grow.

Was it smart? He still ended up with 8% going into the 401K. In those pre-Enron days the law allowed companies to limit the company match to 100% company stock which meant that employees retirement was at risk. Of course by the early 2000's the stock that was purchased for $6 a share was worth $80 a share...

Now what about the IRS:

Since I make designated Roth contributions from after-tax income, can I make tax-free withdrawals from my designated Roth account at any time?

No, the same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of earnings and basis and the earnings portion will be included in gross income unless you have had the designated Roth account for 5 years and are either disabled or over age 59 ½.

Regarding getting just contributions:

What happens if I take a distribution from my designated Roth account before the end of the 5-taxable-year period?

If you take a distribution from your designated Roth account before the end of the 5-taxable-year period, it is a nonqualified distribution. You must include the earnings portion of the nonqualified distribution in gross income. However, the basis (or contributions) portion of the nonqualified distribution is not included in gross income. The basis portion of the distribution is determined by multiplying the amount of the nonqualified distribution by the ratio of designated Roth contributions to the total designated Roth account balance. For example, if a nonqualified distribution of $5,000 is made from your designated Roth account when the account consists of $9,400 of designated Roth contributions and $600 of earnings, the distribution consists of $4,700 of designated Roth contributions (that are not includible in your gross income) and $300 of earnings (that are includible in your gross income).

See Q&As regarding Rollovers of Designated Roth Contributions, for additional rules for rolling over both qualified and nonqualified distributions from designated Roth accounts.

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  • The is specifically regarding withdrawals of earnings from the Roth account. I'm fairly certain that doesn't apply to withdrawing solely the principle.
    – Matthew
    Commented Oct 31, 2014 at 17:08
  • added anther part of the FAQ
    – mhoran_psprep
    Commented Oct 31, 2014 at 17:14
  • So if I'm reading that section correctly then I must qualify (and pay penalty) on the proportion of the withdrawal equal to the proportion of value in the account which is earnings versus contribution. So if I contributed $1000, and made 10% (so account now at $1100). No matter what I withdraw I have to pay penalty on 10% of it. Is that right?
    – Matthew
    Commented Oct 31, 2014 at 18:30

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