1

This question is quite similar to this one, which I asked earlier this week.

Suppose I have contributed to my Roth IRA plan $5,500 for 5 years for a total of $27,500 of contributions, plus another $5,000 of earnings (i.e., total value of account is $32,500).

Suppose I have also contributed $5K to a Roth 401K plan for 5 years, and my 401K now has a total of $25K (assume no earnings for simplicity).

I decide to roll-over my Roth 401K to my Roth IRA, so the total of my Roth IRA is now $32,500 + $25,000 = $57,500.

How much can I withdraw from my Roth IRA without hitting penalties, taxes, or fees? Based on the above-mentioned question, I can definitely withdraw up to my contributions ($27,500) penalty and tax free. It makes intuitive sense to me that I would be able to withdraw up to $52,500, since those are funds I have already paid taxes on, but based on other references, it seems IRA rollovers do not count as contributions.

3

You could immediately withdraw $52,500 (Roth IRA contributions + Roth 401(k) contributions) without tax or penalty. If you look at the instructions for Form 8606, which you'd file for a Roth IRA distribution, it says for Part III, line 22 (Roth IRA contribution basis):

Increase the amount on line 22 by any amount rolled in from a designated Roth account that is treated as investment in the contract.

This means your Roth 401(k) contributions, once rolled over, become equivalent to direct Roth IRA contributions. Note that when you do the rollover you'll get a Form 1099-R. Box 5 will have the amount of your Roth 401(k) contributions for your records.

  • it is not a good plan to withdraw though, unless there are urgent needs, as inside the Roth, all gains are tax-free, whereas once you take it out, any further gains are taxable. – Aganju Apr 15 '18 at 23:27
  • @Aganju: can you please elaborate? If I take out my contributions and leave my earnings there, any future earnings (including those on future contributions) are taxable? – David Apr 16 '18 at 2:04
  • no. what I meant is Earnings on the money you take out become taxable, for example, if you invest it somewhere else. – Aganju Apr 16 '18 at 11:54
  • @Aganju: yes, that makes sense. – David Apr 16 '18 at 22:35

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