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Advisor Insights

Roth Rollover Traps

Contributor Natalie Choate reviews the good, the bad, and the ugly when rolling over from a Roth 401(k) to a Roth IRA.

Three sisters--Rosemary, Ginger, and Sage--work at Acme Widget. All three are retiring this year. None of them is disabled. All three have Roth 401(k) accounts at Acme, which they have held for 10 years, and want to roll these accounts over into Roth IRAs. Coincidentally, each sister’s Roth 401(k) account contains exactly $30,000 of contributions (made via salary reduction) and $15,000 of “earnings,” for a total of $45,000. How do the “five-year waiting period” and “qualified distribution rules” apply to these rollovers? Here are their individual situations:

The oldest, Rosemary, is 65. She has had a Roth IRA since 2010.