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I have a Roth 401k from a prior employer and I want to roll it into a Roth IRA. For simplicity, let's assume there are no pre-tax employer match funds in the 401k, only my after tax contributions and earnings on those contributions.

I know my contributions can be rolled into the Roth IRA with no problem, but what about the earnings in the Roth 401k? Common sense and most of what I read indicates earnings should be rolled over with no adverse effects.

I find conflicting information on this, and so far have not found a straight answer. When I go through the rollover procedures on Fidelity's website, the transaction preview shows my contributions headed for my Roth IRA, and the earnings splitting off into a traditional IRA, or I am given the option to pay taxes on my earnings and convert them to Roth. This does not seem correct to me.

Quote from IRS:

The amount contributed to a designated Roth account is includible in gross income in the year of the contribution, but eligible distributions from the account (including earnings) are generally tax-free.

Is "generally tax-free" pretty loose?

Does anybody have a first-hand experience doing this kind of rollover? Bonus points if you managed to do it from a Fidelity-managed Roth 401k.

Chris W. Rea
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zerpsed
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1 Answers1

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So first off, this should be handled as a rollover, not a "distribution". Rollovers have different rules than distributions. Therefore, your quote from the IRS does not apply. The simple answer is your entire Roth 401k amount can rollover to a Roth IRA with no penalties or taxes. If Fidelity is routing it differently then they're having an error in their system that you may need to speak with someone about.

Jared
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