Those that have multiple Roth 401k plans—for example, both a Roth 401k with a former employer and a Roth solo 401k need to understand the rules surrounding the 5 year Roth 401k distribution period.
- Each 401k plan will have its own 5-year holding period.
- The existing holding period can be rolled to a new 401k plan. For example, those that transfer a former employer Roth 401k to a new Roth solo 401k plan can carry over the former employer’s Roth 401k holding period to the new solo 401k plan.
- However, if you do a 60-day rollover from the former employer 401k to the new solo 401k plan, the existing holding period becomes that of the new plan.
EXAMPLE:
Jim is 61 years old and has a Roth 401k with his former employer, The Home Store. After working for The Home Store from 2006 to 2014, Jim can take a qualified distribution from his Roth 401(k) at The Home Store because that Roth 401(k) account has been held for more than 5 years and Jim is over age 59½. Then Jim became self-employed and opened a solo 401k for his self-employed business in 2015 that allows for Roth Solo 401k contributions and started making Roth solo 401k contributions in 2016 . However, Jim cannot take a qualified distribution from his Roth solo 401(k) even though he is over 59½. Reason being, his Roth solo 401(k) account has not been held for 5 years. The time he has accrued in his former employer Roth 401(k) at The Home Store does not affect the time he has in his Roth solo for his self-employed business.
However, there is a way that Jim can take qualified distributions. Jim can process a direct rollover of his former employer Roth 401k with The Home Store to his self-employed Roth solo 401k plan. Therefore, His time in the plan at The Homes Store will also transfer to his self-employed Roth solo 401k. As a result, Jim can take qualified Roth solo 401(k) distributions from his self-employed Roth solo 401k.
