Cannot Rollover just Roth 401(k) to Roth IRA?

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Topic Author
mrken
Posts: 23
Joined: Mon Oct 02, 2017 6:24 pm

Cannot Rollover just Roth 401(k) to Roth IRA?

Post by mrken »

I left my job and have the option to rollover my 401(k) at Fidelity to an IRA. My 401(k) account consists of both pre-tax and Roth funds.

Fidelity NetBenefits says I cannot rollover (or withdraw) just the Roth portion of the 401(k). The rollover (or withdrawal) must be a pro-rata share of pre-tax and Roth money. Is this accurate or should I try another department?

Is there any other way to keep pre-tax money in a 401(k) account and Roth money in an IRA? I do not expect to be in another job with a 401(k) plan.

The reason I prefer pre-tax money in a 401(k) account is to avoid a traditional IRA balance for future backdoor Roth conversions. Additionally, Canada allows pension income splitting for 401(k) distributions but not IRA distributions.

P.S. Fidelity did allow me to rollover after-tax contributions to a Roth IRA without touching any pre-tax funds while I was still employed.
MrJedi
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by MrJedi »

This is specific to the plan. The IRS allows it but plans can individually have different rules. Worst case is some plans don't allow any partial distributions/rollovers whatsoever, full distributions only. Others let you pick and choose exact dollar amounts on any day, etc.

I would try asking again...a plan with MBDR flexibility seems like it would have the flexibility to allow Roth only distributions/rollovers, but that's certainly not a rule.
HomeStretch
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by HomeStretch »

Read the plan agreement to verify your options for distributions as a former employee.
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retiredjg
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by retiredjg »

Agree with above - this is specific to your plan and is likely correct (unless the rep is not reading your plan correctly).
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Swee'pea
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by Swee'pea »

Can you contact your plan sponsor or administrator to find out if there are proposed/pending changes to the plan that will help you do this?

Our previous 401(k) plans seemed to be static for years but recently implemented additional withdrawal options in line with new IRS rules.
Topic Author
mrken
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by mrken »

Called Fidelity again and asked for more details. This representative seemed quite knowledgable and said my 401(k) plan does not allow for "source-specific withdrawals" after some research. He submitted a comment to the plan administrator on my behalf to allow for source-specific withdrawals from the plan.

I tried going through the 401(k) plan document and could not find any restrictions. Under Source of Withdrawals: "Withdrawals shall be paid from the affected Account and subaccount specified by the Participant. If more than one Investment Fund is available to pay the withdrawal, the withdrawal shall be made from the Investment Fund(s) designated by the Participant, subject to such ordering restrictions as the Company may adopt."

The 401(k) plan does not have separate "accounts" for pre-tax and Roth funds. I put everything into the BrokerageLink account so the sources are comingled. Would I be able to separate the pre-tax and Roth investments and then rollover just the Roth investments?
placeholder
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by placeholder »

mrken wrote: Thu Mar 30, 2023 7:03 pm The 401(k) plan does not have separate "accounts" for pre-tax and Roth funds. I put everything into the BrokerageLink account so the sources are comingled.
Actually it does have separate accounts for those and also for things like employer match it's just that you don't see those lines when you view your holdings.
AnEngineer
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by AnEngineer »

mrken wrote: Thu Mar 30, 2023 7:03 pm Called Fidelity again and asked for more details. This representative seemed quite knowledgable and said my 401(k) plan does not allow for "source-specific withdrawals" after some research. He submitted a comment to the plan administrator on my behalf to allow for source-specific withdrawals from the plan.

I tried going through the 401(k) plan document and could not find any restrictions. Under Source of Withdrawals: "Withdrawals shall be paid from the affected Account and subaccount specified by the Participant. If more than one Investment Fund is available to pay the withdrawal, the withdrawal shall be made from the Investment Fund(s) designated by the Participant, subject to such ordering restrictions as the Company may adopt."

The 401(k) plan does not have separate "accounts" for pre-tax and Roth funds. I put everything into the BrokerageLink account so the sources are comingled. Would I be able to separate the pre-tax and Roth investments and then rollover just the Roth investments?
This sounds like the restriction is about fund type. If you have stocks and bonds you can't sat sell the bonds to fund the distribution, it'll be prorated instead.

A subaccount in my experience refers to traditional, Roth etc. What you quoted indicates you can specify the subaccount.

Maybe something about the brokeragelink is mucking this up.

BTW, why do you want to roll it over so much if you're going to keep the traditional money there?
Topic Author
mrken
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by mrken »

Is this kind of restriction common in 401(k) plans?

While I was still employed, I heard rumblings about creating separate pre-tax and Roth accounts within the 401(k) plan, but the proposal was scrapped for some reason unknown to me. Perhaps it will happen at a later date and I should just wait for it.

The Fidelity representative also said I can no longer rollover the just after-tax money now that I have separated from the company. Any after-tax withdrawals now has to include a pro-rata share of pre-tax and Roth money. Does this sound right? I used to be able to make in-service withdrawals of just the after-tax funds while employed (to fund a mega backdoor Roth IRA).

The reasoning? Roth IRAs do not have RMDs and also let me chase brokerage transfer bonuses. :)
MrJedi
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by MrJedi »

mrken wrote: Fri Mar 31, 2023 5:11 pm Is this kind of restriction common in 401(k) plans?

While I was still employed, I heard rumblings about creating separate pre-tax and Roth accounts within the 401(k) plan, but the proposal was scrapped for some reason unknown to me. Perhaps it will happen at a later date and I should just wait for it.

The Fidelity representative also said I can no longer rollover the just after-tax money now that I have separated from the company. Any after-tax withdrawals now has to include a pro-rata share of pre-tax and Roth money. Does this sound right? I used to be able to make in-service withdrawals of just the after-tax funds while employed (to fund a mega backdoor Roth IRA).

The reasoning? Roth IRAs do not have RMDs and also let me chase brokerage transfer bonuses. :)
There are all sorts of crazy plan specific restrictions out there. There are some plans that will even only allow full distribution following separation, no partials.

FYI Roth 401k no longer has RMD with the new SECURE 2.0 that recently went into law.
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retiredjg
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by retiredjg »

mrken wrote: Fri Mar 31, 2023 5:11 pm Is this kind of restriction common in 401(k) plans?

While I was still employed, I heard rumblings about creating separate pre-tax and Roth accounts within the 401(k) plan, but the proposal was scrapped for some reason unknown to me. Perhaps it will happen at a later date and I should just wait for it.

The Fidelity representative also said I can no longer rollover the just after-tax money now that I have separated from the company. Any after-tax withdrawals now has to include a pro-rata share of pre-tax and Roth money. Does this sound right? I used to be able to make in-service withdrawals of just the after-tax funds while employed (to fund a mega backdoor Roth IRA).

The reasoning? Roth IRAs do not have RMDs and also let me chase brokerage transfer bonuses. :)
The plan can put all kinds of limits and requirements on withdrawals after you leave employment. Nothing you are saying is unusual. You'll have to figure out a way to make this this plan's rules work for you.
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by placeholder »

Back when my megacorp 401k had accumulated aftertax contributions which I found out could be rolled to roth ira and when I went to do that I wanted to do that I specified just from stable value but that subaccount had been spread out over the designated contribution funds so I had to take money from various funds but then I just rebalanced to what I wanted.
KineticSync
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by KineticSync »

Same deal here. I could have pulled the in plan Roth while employed, but a few weeks after leaving I discovered that all withdrawals are pro rata across all sources and funds.

The injury added to insult is that my annual withdrawals also work this way, and therefore liquidate stock I don't want to liquidate instead of the stable value fund holding my near term withdrawals.

Stay tuned early next year where I try to correct the investments the day after the pro rata withdrawal and possibly run into a round trip violation.

At which point it goes into an IRA.
Topic Author
mrken
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by mrken »

Would have been nice to easily find out how separation affects a 401(k) plan withdrawals! Luckily I only have a small amount of after-tax funds stuck. Interesting these kinds of potential restrictions are not mentioned in articles comparing IRA and 401(k) accounts.

In my 401(k) plan, I was able to choose a specific fund to invest my after-tax money in, and only rolover that fund without touching the pre-tax or Roth portions of the plan.

Good to know that Roth 401(k) accounts can avoid RMDs soon. But if the plan only allows pro-rata distributions, would the pre-tax RMDs not effectively force Roth RMDs? Hopefully this law change will compel plan administrators to lift the pro-rata requirement.
HomeStretch
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by HomeStretch »

If you are trying to preserve your ability to do future backdoor Roths, that means you may have future compensation. If you are taking another job, you [edit - may] have the ability to rollover the traditional 401k into a new employer plan and rollover Roth/aftertax balances to a Roth IRA.
Last edited by HomeStretch on Sat Apr 01, 2023 8:34 am, edited 2 times in total.
Lionel Hutz
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by Lionel Hutz »

mrken wrote: Sat Apr 01, 2023 2:45 am But if the plan only allows pro-rata distributions, would the pre-tax RMDs not effectively force Roth RMDs?
Yes, it would.
Hopefully this law change will compel plan administrators to do lift the pro-rata requirement.
Plans pay a fee per participant, among other things, so it’s not uncommon for a plan to not be the most convenient for ex employees, by design, as a passive encouragement to rollover to an IRA where you have fewer restrictions and hoops.
w5000
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by w5000 »

If you're not able to get your plan / Fidelity to let you rollover just the Roth 401(k) and after-tax funds, isn't the solution to roll over all the funds to an IRA, do a reverse rollover of the pretax funds to your new employer's 401(k) (I assume there is one), and then do a Roth conversion of your basis (Roth 401(k) and after-tax balances)?
AnEngineer
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by AnEngineer »

mrken wrote: Sat Apr 01, 2023 2:45 am Good to know that Roth 401(k) accounts can avoid RMDs soon. But if the plan only allows pro-rata distributions, would the pre-tax RMDs not effectively force Roth RMDs?
Probably, but I don't see a situation where you'd be simultaneously worried about keeping trad IRA balance at zero to preserve backdoor Roth capability and Roth 401k balance at zero to avoid RMDs. If RMDs are an issue you can roll into an IRA at that point.
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retiredjg
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Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by retiredjg »

mrken wrote: Thu Mar 30, 2023 2:22 am I left my job and have the option to rollover my 401(k) at Fidelity to an IRA. My 401(k) account consists of both pre-tax and Roth funds.

Fidelity NetBenefits says I cannot rollover (or withdraw) just the Roth portion of the 401(k). The rollover (or withdrawal) must be a pro-rata share of pre-tax and Roth money. Is this accurate or should I try another department?

Is there any other way to keep pre-tax money in a 401(k) account and Roth money in an IRA? I do not expect to be in another job with a 401(k) plan.

The reason I prefer pre-tax money in a 401(k) account is to avoid a traditional IRA balance for future backdoor Roth conversions. Additionally, Canada allows pension income splitting for 401(k) distributions but not IRA distributions.

P.S. Fidelity did allow me to rollover after-tax contributions to a Roth IRA without touching any pre-tax funds while I was still employed.
You want to keep the traditional 401k so you can do "backdoor Roth conversions".

There is frequently a confusion between using the "backdoor Roth process" (because your income is too high to contribute to Roth IRA) and doing "Roth conversions". They are not the same thing and a traditional IRA balance will not interfere with simple Roth conversions.

Which do you want to do?

If you will not have a 401k in a future job, what will you have? Will your income be so high that you can't contribute to Roth IRA?
Topic Author
mrken
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Joined: Mon Oct 02, 2017 6:24 pm

Re: Cannot Rollover just Roth 401(k) to Roth IRA?

Post by mrken »

HomeStretch wrote: Sat Apr 01, 2023 6:39 am If you are trying to preserve your ability to do future backdoor Roths, that means you may have future compensation. If you are taking another job, you [edit - may] have the ability to rollover the traditional 401k into a new employer plan and rollover Roth/aftertax balances to a Roth IRA.
w5000 wrote: Sat Apr 01, 2023 8:03 am If you're not able to get your plan / Fidelity to let you rollover just the Roth 401(k) and after-tax funds, isn't the solution to roll over all the funds to an IRA, do a reverse rollover of the pretax funds to your new employer's 401(k) (I assume there is one), and then do a Roth conversion of your basis (Roth 401(k) and after-tax balances)?
retiredjg wrote: Sat Apr 01, 2023 9:41 am If you will not have a 401k in a future job, what will you have? Will your income be so high that you can't contribute to Roth IRA?
I may not have another W-2 job with a 401(k) plan, so looking to keep my options open.
Lionel Hutz wrote: Sat Apr 01, 2023 7:34 am
mrken wrote: Sat Apr 01, 2023 2:45 am Hopefully this law change will compel plan administrators to do lift the pro-rata requirement.
Plans pay a fee per participant, among other things, so it’s not uncommon for a plan to not be the most convenient for ex employees, by design, as a passive encouragement to rollover to an IRA where you have fewer restrictions and hoops.
All participants in my plan, both current and former employees, pay the plan fees. I do not believe the company contributes to any of the plan costs. The plan fees are also deducted pro-rata, with no option to only deduct them from the traditional balance.
AnEngineer wrote: Sat Apr 01, 2023 9:35 am
mrken wrote: Sat Apr 01, 2023 2:45 am Good to know that Roth 401(k) accounts can avoid RMDs soon. But if the plan only allows pro-rata distributions, would the pre-tax RMDs not effectively force Roth RMDs?
Probably, but I don't see a situation where you'd be simultaneously worried about keeping trad IRA balance at zero to preserve backdoor Roth capability and Roth 401k balance at zero to avoid RMDs. If RMDs are an issue you can roll into an IRA at that point.
I may retire in Canada where pension income splitting is allowed for 401(k) distributions but not IRA distributions. I guess I can take a pro-rata distribution of both traditional and Roth funds, and do an indirect rollover of just the Roth funds into a Roth IRA.
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