Roth 5-Year Period for Rehires

[DTH]

A 401(k) plan permits designated Roth contributions. If a participant terminates employment and takes his/her entire account balance and then is rehired, does the 5-year Roth period start over?

[John Feldt ERPA CPC QPA]

Same plan? Same Participant? Then no, as far as I can tell, the 5-year Roth clock does not start over.

[Guest jaspers]

Another question about the five year rule for Roth 401k.

Is this how it works?

If a participant opens and contributes to the Roth 401k at 56 years old, tax free withdrawals are not permitted until 61 years old? Do I have this right?

Thanks a little slow this morning.

[John Feldt ERPA CPC QPA]

Yes, in this case would be age 61.

Both (1) and (2) must be met:

(1) Five-year taxable period must have ended

(2) A qualifying event must have occurred (death, disability, reached age 59.5).

The five year clock begins with the January 1 of the first calendar year that a Roth contribution is made.

If the first contribution goes in October 1, 2006 when the participant had his 56th birthday, then:

2006 = year 1 (age 56)

2007 = year 2 (age 57)

2008 = year 3 (age 58)

2009 = year 4 (age 59)

2010 = year 5 (age 60)

Any withdrawal before 12/31/2010 would be too early. The five-year clock ends 12/31/2010.

A withdrawal on January 1, 2011 has met the five year rule (even though that is technically only 4.25 years after the first contribution was made).

[Guest jaspers]

J4FKBC,

Thank you once again for the info and the example. Much appreciated.