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Roth/Traditional IRA

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Level 3

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

                                                                                                                                                              

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4 Replies 4
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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.


ex-AllStar
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Level 13

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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"Level Up" is a gaming function, not a real life function.
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Level 3

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.

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Level 13

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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"Level Up" is a gaming function, not a real life function.
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