If I transfer Roth 401(k) funds to a Roth IRA, are they subject to required minimum distributions at 70.5 years old?
If I transfer my Roth 401(k) funds to my Roth IRA account via a trustee-to-trustee transfer when I retire, will the Roth 401(k) funds (once they are in a Roth IRA) be subject to required minimum distributions (RMDs) when I am 70.5 years old?
No, you will not be subject to any more RMDs once the money is stashed in the Roth IRA. That’s the beauty of the tax-exempt saving for you. One step further, even for people who don’t have a Roth 401k, it’s still ideal to gradually convert some of the traditional 401k to Roth IRA several years prior to the retirement because of the possibility of an increased Medicare premium.
Especially considering the current low tax rate post tax reform, it could work in many savers’ favor. Keep in mind, many of those favorable tax benefits have the sunset date, which means they will expire in 10 years unless Congress acts on it. Thus, this could be a great time to review all options with your financial planner to make sure you get the most benefits with the least tax bill. Best!
No, you would essentially eliminate your RMDs. Once you turn 70.5 years of age the government requires you to take these funds out of your traditional IRA every year. If you forget or choose not to take these funds out of your traditional IRA, there is a 50% penalty. Whereas with a Roth IRA there are no RMDs.
Additionally when withdrawing funds from your traditional IRA, the income counts as provisional income, whereas when withdrawing funds from your Roth IRA, the distributions have no Social Security tax. Roth IRA distributions do not count against income thresholds that may cause Social Security benefits to be taxed.
Your heirs will also receive your Roth funds tax-free.
Read more: Tax Savings with a Roth IRA and Real Estate.)
Hi there! Great question. This is often overlooked by people, but there is a five-year rule associated with Roth IRA's regardless of whether you're transferring from a Roth 401(k) or doing a conversion from a traditional 401(k) or IRA. The five year rule states that earnings and interest from a Roth IRA will be taxed unless you've owned the Roth IRA for at least five years. While it does not sound like you want to take withdrawals from the Roth, it is something to be aware of.
To answer your original question, by transferring the Roth 401(k) to a Roth IRA, you forego having to make required minimum distributions at 701/2. In fact, you never have to take a distribution from a Roth if you don't want to! It makes Roth's a great way to leave a legacy tool if you'd like to leave assets to children or grandchildren as well. All the extra years of tax-free compounding can really add up!
Hope that's helpful.
No, the Roth IRA would not have an RMD like the Roth 401(k) does. That's a great feature of Roth IRA's! Of course, any non-spouse recipient of a Roth IRA would have to take an RMD, but at least it would not be taxable to them either.
If you leave the money in a 401k ROTH or otherwise you funds will be subject to RMDs. If you rollover your ROTH 401k to a ROTH IRA you will not be subject to RMDs
I write more about this topic here on the Financial Planner LA Blog What is the difference between a ROTH IRA and ROTH 401k? Which is Best? Give it a read.
Best of Luck