Roth/Traditional IRA

Forum|Forum|6 years ago
August 10, 2020
4 replies
23 views

Help and reassurance please, tax year 2018

Client received a total distribution from a company sponsored Roth 401K. The store location in which she worked closed down. Client is 58 years old in 2018.

The total distribution was $16,416.61. $11,920.42 was her designated Roth contribution and $4,496.19 was company's contribution. She rolled over the total amount as follows: $11,920.42 to a Roth and the company's contributions or $4,496.19 to a Traditional IRA. OK total roll over of the distribution, code G, so nothing is taxable.

Then later on in 2018, she withdraws $5,500 from the Roth IRA with a code J, early distribution from a Roth. Here is where I am looking for reassurance. My thoughts are this $5,500 is not table because she already paid tax on it as an employee and there is no 10% penaltyeven though she is not 59 1/2 yet.

And my next question is the $4,496.19 that she rolled over from her Roth IRA at work into a traditional IRA, is that considered a deductible contribution to an IRA?

Thank you in advance for your help

This topic has been closed for replies.

sjrcpa

Level 15

1st question. Not taxable. She has basis in the Roth IRA.

2nd question - No. The employer contribution has never been taxed. No deduction.

The more I know the more I don’t know.

qbteachmt

Level 15

What you did not include here is the date of that Roth 401(k) account; nor the date of the personal Roth account that received the funds or the basis there. Read about the 5 year rule.

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M

mcd1231Author

Level 4

She rolled over her direct contributions from her Roth at work to a Roth IRA in 2018.

The earnings from the Roth at work were rolled over to a traditional IRA.

When she took the $5,500 withdrawal in 2018, she took it from her Roth contributions IRA not the traditional IRA.

The 5 year rule applies to withdrawal of earnings from a Roth or a conversions from a traditional IRA to a Roth or an inherited Roth IRA. None of these situations apply to my client.

qbteachmt

Level 15

You can call it a Roth "contributions" account, but that doesn't describe that this account also had no earnings, and it doesn't explain if that was a new account for her or that receiving Roth account already existed. Of course the company match, which is Pre-tax, goes into a Traditional. You stated "later" she took from the Roth.

I think this topic will be helpful:

https://www.irs.gov/retirement-plans/designated-roth-accounts-distributions

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