Roth 401k Distribution if Terminated after 55

[Vlad401k]

We have a participant who terminated during the year he turned 55. So, normally, he would have a Code 2 for the distribution. However, since he has Roth funds in the account, the code would be B2. If he had the funds in the account 5 years or more, my understanding is that he would not be subject to the 10% penalty on the earnings (because he was terminated in the year he turned 55), but would have to pay taxes on the earnings (because he's not 59 1/2). Would you agree?

[card]

2 hours ago, Vlad401k said:

So, normally, he would have a Code 2 for the distribution. However, since he has Roth funds in the account, the code would be B2.

Agree, except that you need to file a separate 1099R for the designated Roth account.

2 hours ago, Vlad401k said:

If he had the funds in the account 5 years or more, my understanding is that he would not be subject to the 10% penalty on the earnings (because he was terminated in the year he turned 55), but would have to pay taxes on the earnings (because he's not 59 1/2). Would you agree?

Agree, except that the same result applies regardless of how old the account is.