21 Mar Can I roll over part of my 401(k)?
Q. I have been told I have the opportunity to move post-tax contributions from my current employer 401(k) to a newly set up a Roth IRA. It would be an in-service 401(k) distribution that will send me a check that I will immediately provide to the Roth IRA. Any concerns? And when can I start taking it out? I’m 56.
— Need guidance
A. We’re glad you asked.
It sounds like you’re still working for this employer and looking to rollover funds.
This is not permitted, said Cynthia Fusillo, a certified public accountant with Lassus Wherley in New Providence.
“Rollovers of an employer 401(k) plan can only happen upon separation of service,” she said.
Additionally, and assuming we fast forward the clock and you are no longer with this employer, it is not permissible to rollover only your after-tax contributions when you also have pre-tax 401(k) contributions in there, Fusillo said.
“The IRS says that any partial plan distribution will include some of your pre-tax amounts as well,” she said. “Assuming you still wanted to roll over all of your post-tax contributions, you could take a complete distribution and rollover your pre-tax balance to a traditional rollover IRA and the post-tax balance to a Roth IRA.”
Fusillo said Roth IRAs are not subject to the Required Minimum Distribution rules that traditional IRAs have. Further, you may withdraw your contributions from a Roth anytime tax-free. But if the account is held for less than five years, the earnings on the distribution may be subject to tax and penalties if you’re under 59 1/2, Fusillo said.
“There are permissible withdrawals to avoid the penalties and they include a first time home purchase, qualified education expenses, disability/death, unreimbursed medical expenses if you’re unemployed or if you take the distribution in substantially equal periodic payments,” she said.
At 59 1/2, the penalties — but not tax — disappear for withdrawals from a Roth less than five years in existence.
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This post was first published in March 2017.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.