Lose ability to withdrawal from retirement acct. w/o penalty?

[francolepza]

I recently quit my job where I had 401(k). Had the job for close to 10 years. Most of my contributions were Roth, and in the last few years as my income increased, I changed contributions to Traditional. I'm in my early 40s.

When I look at website for the account, it says that out of the total balance of the account, my Net Roth Contributions were (for example) $100,000, and that "First year of withdrawal without penalty" is 2019.

My plan has been to roll this 401(k) into existing IRAs. I have both an existing Roth IRA and Traditional IRA. From what I understand, the Roth allocations in the 401(k) will roll into my existing Roth IRA, and my the non-Roth allocations in the 401(k) will roll into my existing Traditional IRA.

What I'm wondering is: if I roll this 401(k) into my existing IRAs, do I lose the ability to withdrawal that $100,000, at some point in the future penalty-free? I don't intend to withdrawal anything, and have emergency savings, but I'm strategizing how to handle a situation where I run out of emergency savings—whether I'll be able to tap these 401(k) Roth Contributions for penalty-free withdrawal as an emergency fund backup if the 401(k) has been rolled-over.

And if I don't lose the ability to withdrawal this $100,000 penalty-free after it's been rolled into my Roth IRA, how can I keep track of this $100,000 number? In other words, at any given point in time (12 months from now or five years from now), how can either I or my CPA know what the amount is that I'm eligible for to withdrawal from the Roth IRA penalty-free? Will my IRA brokerage provide that information, or does my CPA somehow have to go back and reverse engineer the number by looking at all my yearly W-2s from this job?

 

[chesed73]

@francolepza

What I'm wondering is: if I roll this 401(k) into my existing IRAs, do I lose the ability to withdrawal that $100,000, at some point in the future penalty-free?

No, you don't lose anything regarding the Roth subaccount. Once you roll over Roth 401k to Roth IRA, the Roth IRA's own 5-year rule takes over. As a reminder, 5-year rule only applies to withdrawing earnings, not contributions. Direct Roth contributions (including Roth 401k contributions later rolled over to Roth IRA) can always be withdrawn without tax, without penalty, for any reason, at any time, without waiting.

how can either I or my CPA know what the amount is that I'm eligible for to withdrawal from the Roth IRA penalty-free?

You need to keep track of them!!

1. Track your direct Roth IRA contributions.
2. Track the direct Roth 401k contributions you rolled over to Roth IRA (see the Roth 401k's Form 1099-R, box 5). Both #1 and #2 are your Roth contributions.

My plan has been to roll this 401(k) into existing IRAs. I have both an existing Roth IRA and Traditional IRA.

You should keep the traditional 401k rollover separate in its own "Rollover IRA" account and refrain from putting new money into it, in case you need to roll over it to a new 401k.

 

[iamsuperior]

@francolepza

My plan has been to roll this 401(k) into existing IRAs.

You should rethink this. 401ks have superior protections from creditors and in a bankruptcy. You just don't know what the future holds.

My sister is going through a bankruptcy, and because of dumb luck all her 401K retirement money and inherited annuities were protected (quirk in FL bankruptcy law). Had that not been the case, she'd have lost everything but her house when her restaurant that never recovered from COVID and two huricanes failed.