Nov 17

When Are Roth Solo 401(k) Distributions Taxed?

When Are Roth Solo 401(k) Distributions Taxed?Generally, distributions from a designated Roth Solo 401(k) account are excluded from gross income if they are (1) made after the employee attains age 59 1/2 , (2) “attributable to” the employee being “disabled,” or (3) made to the employee’s beneficiary or estate after the employee’s death. However, the exclusion is denied if the distribution occurs within five years after the employee’s first designated Roth contribution to the account from which the distribution is received or, if the account contains a rollover from another designated Roth account, to the other account. Other distributions from a designated Roth account are excluded from gross income under Internal Revenue Code 72 only to the extent they consist of designated Roth contributions and are taxable to the extent they consist of trust earnings credited to the account.

Please contact one of our 401(k) Experts at 800-472-0646 for more information.

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May 16

How Are Roth 401(k) Withdrawals Taxed?

All distributions from Roth 401(k) plans are either qualified distributions or nonqualified distributions. If the distribution is a qualified distribution, the early distribution tax does not apply. The early distribution tax applies only to those distributions that are subject to income tax. Because all qualified distributions from Roth 401(k) Plans are tax free, they are also exempt from the early distribution tax as well.

A “ qualified distribution” from a Roth IRA is excluded from gross income. To be qualified, a distribution must satisfy both of the following requirements:

  • It must not occur before the fifth taxable year following the year for which a Roth IRA contribution was first made by the taxpayer or the taxpayer’s spouse.
  • It must be made after the account owner reaches age 59 1/2 or becomes disabled, be made to the owner’s beneficiary or estate after the owner’s death, or be a “qualified special purpose distribution.”

For more information about the Roth 401(k) plan, please contact us @ 800.472.0646.

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Mar 28

Avoiding Required Minimum Distribution Rules With A Roth 401(k) Plan

Here’s another article from Forbes by our own Adam Bergman –

In the case of a 401(k) qualified retirement plan, when one reaches the age of 70 1/2, a 401(k) plan participant generally is required to start taking taxable withdrawals, also known as required minimum distributions (“RMDs”) from their 401(k) plan.  The same RMD rules apply to pre-tax IRAs, SIMPLE IRAs and SEP IRAs.  However, Roth IRAs, which consists of after-tax contributions and which can generate tax-free returns, do not require RMDs until after the death of the owner or his/her spouse. This exception to the RMD rules for Roth IRAs allow for some tax planning opportunities.

Avoiding Required Minimum Distribution Rules With A Roth 401(k) PlanNot all employer sponsored 401(k) plans offer a Roth component.  For employer sponsored 401(k) plans that offer a Roth option, eligible employees generally have the option to make pre-tax as well as Roth employee deferral contributions. Under 401(k) plan rules, a plan participant who reached the age of 70 1/2 would be required to take RMDs on both the pre-tax and Roth amounts. RMDs are the minimum amount one must withdraw from the retirement account each year.  RMD withdrawals will be included in the plan participant’s taxable income except for any part that was taxed before (basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

The RMD amount for any given year is the total account balance in the retirement account as of the end of the immediately preceding calendar year (12/31) divided by a distribution period as set forth by the IRS each year. Accordingly, if a plan participant nearing or over the age of 70 1/2 has a Roth 401(k) account in a 401(k) plan, the individual can directly rollover the Roth funds to a Roth IRA tax-free prior to 12/31 leaving the Roth 401(k) account with a zero balance and, thus, avoiding the RMD rules since a Roth IRA is not subject to the RMD rules.

For example, Jen is sixty-nine years old and has $185,000 in her employer sponsored Roth 401(k) plan.  If Jen left the Roth 401(k) funds in the 401(k) plan she would become subject to the RMD rules at 70 1/2.  However, if Jen elected to directly rollover the Roth 401(k) plan funds tax-free into a Roth IRA prior to 12/31, she would be able to avoid the RMD rules and, thus, gain the opportunity to continue increasing the value of the Roth account without having to take yearly withdrawals.

For a participant in an employer sponsored 401(k) plan who has a Roth account and is nearing or over the age of 70 1/2, understanding the Roth 401(k) and Roth IRA RMD rules and exceptions could help further advance the overall value of the Roth account as well as offer some potentially valuable estate planning opportunities.

For more information about the Roth 401(k), please contact us @ 800.472.0646.

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Nov 30

What Are the Distribution Rules for a Roth Solo 401k?

The required distribution rules that force you to begin taking money out of your retirement plans and Traditional IRAs during your lifetime also apply to Roth Solo 401(k) Plans. The required distribution rules also force your beneficiaries to take distributions from the account after your death.

What Are the Distribution Rules for a Roth Solo 401k?Note: the rules for a Roth Solo 401(k) Plan are different from those for a Roth IRA. If you have a Roth Solo 401(k) plan, you must begin taking distributions from the account when you reach age 70 and 1/2, or after you retire, if that is later.

For more information about the Roth Solo 401(k), please contact the IRA Financial Group @ 800.472.0646.

 

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Jan 11

When Are Roth 401k Distributions Taxable?

Generally, distributions from a designated Roth account are excluded from gross income if they are (1) made after the employee attains age 59 1/2 , (2) “attributable to” the employee being “disabled,” or (3) made to the employee’s beneficiary or estate after the employee’s death. However, the exclusion is denied if the distribution occurs within five years after the employee’s first designated Roth contribution to the account from which the distribution is received or, if the account contains a rollover from another designated Roth account, to the other account. Other distributions from a designated Roth account are excluded from gross income under Internal Revenue Code 72 only to the extent they consist of designated Roth contributions and are taxable to the extent they consist of trust earnings credited to the account.

When Are Roth 401k Distributions Taxable?

Please contact one of our 401(k) Experts at 800-472-0646 for more information.

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Sep 28

How Are Roth 401k Distributions Taxed?

All distributions from Roth 401(k) plans are either qualified distributions or nonqualified distributions. If the distribution is a qualified distribution, the early distribution tax does not apply. The early distribution tax applies only to those distributions that are subject to income tax. Because all qualified distributions from Roth 401(k) Plans are tax free, they are also exempt from the early distribution tax as well.

A “ qualified distribution” from a Roth IRA is excluded from gross income. To be qualified, a distribution must satisfy both of the following requirements:

  • It must not occur before the fifth taxable year following the year for which a Roth IRA contribution was first made by the taxpayer or the taxpayer’s spouse.
  • It must be made after the account owner reaches age 59 1/2 or becomes disabled, be made to the owner’s beneficiary or estate after the owner’s death, or be a “qualified special purpose distribution.”

For more information, please contact us @ 800.472.0646.

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Sep 01

Back to Basics – What is a Roth 401k?

Employers can also establish a special type of 401(k) plan called a Roth 401(k). This plan is similar to a traditional 401(k) plan in that it allows employees to defer salary in to the plan. The difference relates to the tax treatment. Contributions to traditional 401(k) plans are tax deductible, contributions to Roth 401(k) plans are not tax deductible. Whereas, the tax benefits for Roth 401(k)s come when you take distributions, which will be tax free so long as certain requirements are satisfied.

Back to Basics - What is a Roth 401k?The IRA Financial Group’s Solo 401(k) Plan allows for Roth type contributions.

Please contact one of our 401(k) Experts at 800-472-0646 for more information.

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