How to create a sepp with a roth component in my 401k

You are here:
< Back

L1: How to create a sepp with a roth component in my 401kI will be retiring in April of 2016. I was born on 9/11/1964. I intend to transfer my 401k to an IRA and start a 72t plan in August.
My questions concern the 401k. I have made both traditional and roth contributions to the plan. When I transfer/rollover the money to an IRA can the roth portion be separated out and placed in a Roth IRA? Or does the money end up in one IRA with both taxable and non-taxable money in it? Does this add a level of complexity that should be avoided?
Thanks2016-01-12 17:09, By: Seareach, IP: [107.145.12.247]

L2: How to create a sepp with a roth component in my 401kThe designated Roth portion cannot be rolled to a TIRA, it must be rolled into a Roth IRA. The main planning issue for you is to determine if your TIRA balance after the rollover of the non Roth portion will be large enough to generate the annual distribution you need.
If not, and you need to use your Roth IRA balance in addition to your TIRA balance to generate a large enough distribution, you can do that but it does add reporting complexity. If both types of IRAs are included in your plan, you will have a choice of how to split your distribution between the two types of IRAs. Obviously, the more you take from the Roth the lower your tax bill will be. Complexity will be increased for both planning, establishing each type of IRA with the balance you need if you have enough total balance to also establish IRA accounts outside the plan for emergencies, ordering distributions, and reporting them on line 15 and Form 8606 with your 1040. It can definitely be done, but the added complexity makes using two IRA types subject to execution error, so you would have to be very careful in the entire process.
If you already have a Roth IRA with conversions under 5 years, your 72t distributions will waive the 10% penalty if you distribute the conversion money inside of 5 years. Also, when you roll your Roth 401k into your Roth IRA, you need to update your accounting for the new composition of the Roth IRA.
2016-01-12 20:47, By: Alan S, IP: [160.3.87.235]

L3: How to create a sepp with a roth component in my 401kThanks for the info. I wasn’t sure how they would handle the Roth portion during the rollover. I’ll run the numbers with just the TIRA.2016-01-12 21:34, By: seareach, IP: [107.145.12.247]