Advertisement
401(k)s

How to Sidestep Required Minimum Distributions From Roth 401(k)s

You usually have to take RMDs from a Roth 401(k) after age 70½ — unless you convert the account to a Roth IRA.

Question: Is it true that you have to take RMDs from Roth 401(k)s, even though no taxes are due? Can I roll over the money from the Roth 401(k) to a Roth IRA to avoid having to take RMDs?

Answer: Yes to both questions. You have to take required minimum distributions from Roth 401(k)s after age 70½, even though the withdrawals are not taxable. As with any 401(k), though, you may be able to delay taking the required withdrawals if you’re still working for that employer past age 70½ (unless you own 5% or more of the company). You must calculate your RMD for each 401(k) and withdraw the money separately from each account -– see 6 Steps to Cutting Your Taxes When You Start Taking RMDs for details.

But you can avoid taking RMDs from your Roth 401(k) by rolling the money into a Roth IRA after you leave your job. If you wait until age 70½ to do that, you’ll have to take that year’s RMD before rolling over the money to the Roth IRA.

Advertisement - Article continues below

Avoiding RMDs, however, is just one factor to consider when deciding whether to roll over your 401(k). Also consider the costs, investing options and other features. “By rolling to an IRA, one has the most flexibility and control over the investment provider and options, but the 401(k) plan may offer lower-cost institutional pricing on funds or even investment options unique to the plan,” says Maria Bruno, a certified financial planner and senior investment strategist at Vanguard. Also, you may be able to access the 401(k) without penalty if you leave your job after age 55, but you’ll generally have to wait until age 59½ to avoid the penalty for tapping your earnings (but not contributions) in a Roth IRA.

Advertisement
Advertisement - Article continues below
Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Stay on Top of RMD Rule Changes for 2020
required minimum distributions (RMDs)

Stay on Top of RMD Rule Changes for 2020

Between the SECURE Act and the CARES Act, the landscape has changed for RMDs this year. You don’t need to take one, for instance. And if you already h…
June 29, 2020
Retirees Get Another Break with Expansion of RMD Waiver
required minimum distributions (RMDs)

Retirees Get Another Break with Expansion of RMD Waiver

The CARES Act cancelled "required minimum distributions" for 2020...and the IRS just expanded that relief to help more seniors and give more time to u…
June 24, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
Why 2020 Is an 'Unprecedented Opportunity' for a Roth IRA Conversion
retirement

Why 2020 Is an 'Unprecedented Opportunity' for a Roth IRA Conversion

Tax advisors say you can reduce your tax bill by 30% to 40% in this unprecedented time.
June 17, 2020