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How is the 5-taxable-year period calculated when an employee rolls over a distribution from a designated Roth account in a 401(k) or 403(b) plan to a Roth IRA?

When an employee rolls over a distribution from a designated Roth account in a 401(k) or 403(b) plan to a Roth IRA, the period that the rolled-over funds were in the designated Roth account does not count toward the 5-taxable-year period for determining qualified distributions from the Roth IRA. However, if that individual had contributed to any Roth IRA in a prior year, the 5-taxable-year period for determining qualified distributions from a Roth IRA is measured from the earlier contribution. So, if the earlier contribution was made more than 5 years ago and the employee is over 59 ½ a distribution of amounts attributable to a rollover contribution from a designated Roth account would be a qualified distribution from the Roth IRA.

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Posted in 401(k)

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