General Notes
We can designate distributions come from the Roth source, but we cannot designate funds to come from Roth basis or gains.
Qualified Roth Distributions
Qualified distributions from a Roth 401(k) or a Roth IRA are tax-free and penalty-free.
Non-qualified distributions may be subject to income taxes, and a 10% early distribution penalty on any taxable amount.
An RMD must be taken before the rollover.
What is a qualified distribution from a designated Roth account?
A qualified distribution is generally a distribution that is made after a 5-taxable-year period of participation and is either:
1. made on or after the date you attain age 59½
2. made after your death, or
3. attributable to your being disabled.
If a distribution is made to your alternate payee or beneficiary, then your age, death or disability is used to determine whether the distribution is qualified. The only exception is when the alternate payee or surviving spouse rolls over the distribution to his or her own employer’s designated Roth account, in which case their own age, death or disability is used to determine whether the distribution is qualified.
A qualified distribution from a designated Roth account is not included in gross income.
Roth distributions that are not qualified
Participants will not be double taxed at any point on Roth distributions, whether qualified or not. This means the basis (money they put in) is taxed once when the funds are added to the retirement account.
The taxable amount will only be from any gains on the account.
The participant will be paying taxes on a pro-rated (equal portions of both basis and gains) amount that will vary based on the day and gains.
Helpful notes from Daily Operations
For a Roth distribution, the Net and Gross will be the same if it's a qualified distribution (because the participant does not owe in taxes).
When completing the distribution paperwork, if the participant elects Gross it means they don't want more than the $ amount listed coming out and what they get in hand doesn't matter as much.
When completing the distribution paperwork, if the participant elects Net it means we have to do more calculating if it's not a qualified distribution. Daily Ops will essentially have to dummy a transaction to see what the taxable amount might be.
With Roth, it's HARD to provide an exact dollar amount. When in doubt, tell them the whole account will be taxable at 20%.