![]() ![]() (State income tax treatment of Roth 401(k) contributions may differ from the federal rules.) 2 You can generally avoid taxation by rolling your distribution over into a Roth IRA or into another employer’s Roth 401(k), 403(b), or 457(b) plan, if that plan accepts Roth rollovers. If your distribution isn’t qualified (for example, if you receive a payout before the five-year waiting period has elapsed or because you terminate employment), the portion of your distribution that represents investment earnings on your Roth contributions will be taxable, and will be subject to a 10% early distribution penalty unless you are 59½ or another exception applies. For example, if you make your first Roth contribution to the plan in December 2016, then the first year of your five-year waiting period is 2016, and your waiting period ends on December 31, 2020.īut if you change employers and roll over your Roth 401(k) account from your prior employer’s plan to your new employer’s plan (assuming the new plan accepts Roth rollovers), the five-year waiting period starts instead with the year you made your first contribution to the earlier plan. The five-year waiting period for qualified distributions starts with the year you make your first Roth contribution to your employer’s 401(k) plan. The payment is made after you turn 59½, become disabled, or die.It’s made after the end of a five-year waiting period. ![]() ![]() In general, a distribution is qualified only if it satisfies both of the following: ![]() But the investment earnings on your Roth contributions are tax free only if you meet the requirements for a “qualified distribution.” Because your Roth 401(k) contributions are made on an after-tax basis, they’re always free from federal income tax when distributed from the plan. ![]()
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