Roth 401-K RMD

[RWG1950]

Taxpayer (when he was 68) opened and made an initial $24K salary deferral contribution into a solo Roth 401-k on Dec 15, 2018.
He'll be 72 in September & has an RMD for 2022 from this account. I've read that qualified tax-free withdrawals require at least 5 tax years of participation.
He'll have participated less than 5 tax years in this account - although he will have 5 actual years in it as of December 16th, 2022 if his initial contribution
is credited as having been made on 1-1-2018. Does it matter whether his RMD withdrawal for 2022 is made before or after his Dec 15th anniversary ?
Is there an exception that would allow for withdrawals made due to RMD (if less than 5 years) to be treated as qualified or tax-free ?
Thanks for replies.

[Rapid Robert]

"if his initial contribution is credited as having been made on 1-1-2018"

Why would that be the case?

"Does it matter whether his RMD withdrawal for 2022 is made before or after his Dec 15th anniversary ?"

No.

"Is there an exception that would allow for withdrawals made due to RMD (if less than 5 years) to be treated as qualified or tax-free ?"

No.

[TaxGuyBill]

I've read that qualified tax-free withdrawals require at least 5 tax years of participation.
He'll have participated less than 5 tax years in this account - although he will have 5 actual years in it as of December 16th, 2022 if his initial contribution
is credited as having been made on 1-1-2018. Does it matter whether his RMD withdrawal for 2022 is made before or after his Dec 15th anniversary ?


Is there an exception that would allow for withdrawals made due to RMD (if less than 5 years) to be treated as qualified or tax-free ?
.

My comments below assume that the rules are the same as a Roth IRA, but perhaps Roth 401ks have different rules for this that I am not aware of.


I think you miscalculated your 5 years; 2022 is only 4 years after 2018. While you are correct that the 5 year period begins on January 1st, 2018, withdrawing it anytime in 2022 will still be less than 5 years.

However, Basis is withdrawn first. Withdrawal of Basis is never subject to tax or penalty, even it it is within the 5 year period. So based on that, the RMD would be tax-free and penalty-free.

Again, maybe 401ks change these rules, but that is how it works for an IRA.


Another POSSIBLE option: Roll the Roth 401k into a Roth IRA. There are no RMDs for a Roth IRA.

[RWG1950]

Many thanks Bill & Robert. Appreciate your comments.

[New York Enrolled Agent]

I agree with TGB on the first issue of the 5 years. The first day of the taxable year for the first contribution is the start. If your taxpayer contributed at any time in 2018, the year starts on January 1. Thus you cannot have a qualified distribution until no earlier than January 1, 2023.

However, distributions from a Roth 401K are treated differently than from a Roth IRA. In a Roth IRA basis does come first but in a Roth 401K non-qualified distributions are a proportionate return of basis and a return of investment income.

[Dusty2004]

Well, I learned something new. I didn't know that Roth 401k's had RMD's. A way around this would be to roll it over to a IRA Roth.

Dusty