The Roth 401(k) Tax Trap 

Great information on the 5 yr rule. I have been contributing via Roth 401K since 2014 and wasn't aware of this cascading over to an additional 5 yr period after converting to a Roth IRA. After watching this I immediately called Fidelity and told them I needed to open a Roth IRA and explained why... 5yr rule. The guy that I talked to was blown away by this. He was totally unaware. They were very thankful for becoming aware of this situation. Thanks and keep up the good work.

Don't entrust your money and financial future with these people who admit to not previously knowing this information. If they just stumbled upon this well known information, while working with a client, go with a different CFP and CPA worth their salt.

this doesnt take 45mins to explain. A roth 401k and a roth ira each have their own 5year clock. if you had your roth 401k for 10 years and you have a roth ira for 4years. When you roll over your 10yr roth 401k into your 4yr roth ira.. all the money is obviously stored in the 4yr roth ira. This means you have to wait 1 more year for all the money in the roth ira to fully mature. Simple answer: open both a roth 401k and roth ira so that you have a mature roth ira account to roll your money into. problem solved

Here is a shorter video we did covering the top 3 things you should know about saving with a roth 401(k)! ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-cNVXjLw6LY4.html

Geez, was that the whole thing? You have to wait five years after opening the account? That's all this was? That's the big "tax trap"?

thanks for the info great content for an 8 minute video

Hmm an awful long video to explain having to wait 5years to collect. Hate to say it, but with all the info on RU-vid and the internet as a whole I feel like a lot of advisors are being faded out. I had a phone interview a famous RU-vid advisor the other day. He told me naw man, you're doing very very well, it wouldn't be worth you paying my 1% fee. Your research and dedication has obviously paid off!

This is good to know because the IRS documentation is ambiguous on this 5 year as are every single chat I found on the internet. Open a ROTH IRA outside of WORK ASAP

Good stuff.

Should my CFP be well versed in tax planning? Or do I need to talk to someone who specializes in tax planning for my estate, in addition to my CFP?

you stated a 17k limit on earnings . for the couple in your example . the error was the limit is per person. so with 27k they are under the limit in your example

Not sure how you consider the 5 year rule as a tax trap. I was aware of that when I opened mine back in 2019. The important thing is that the earnings are still tax free. If you stay on top of your investment and watch the returns you can adjust your investment to get the maximum returns.

But the 5 year rule applies just to earnings…so if you’re doing a rollover from a Roth 401k, I’d the entire rollover considered the principal? Or the portion that’s actually principal in the Roth 401k, will it still be considered the principal after the rollover and not subject to the 5 year rule? Or is everything subject to the rule?

My son has offered to buy me a house and rent it to me. He would get depreciation and interest deduction. I would sell my house and invest it in S&P 500 fund. Use that to pay the rent. I think that would not have to pay any tax on the house because of the $250,000 exemption.

How can start it ?

Are you sure a person only needs to have an open Roth account for five years? I think it has more to do with the yearly deposits having been in the account for five years and not being able to withdraw an amount greater than an amount in the Roth account that has sufficiently aged five years?

Good video. Thanks.

The issue is a lot of people don't have all this extra. You can put an extra 6000 all the stuff where are you supposed to get the money?

If you retire before 59 1/2 and you have a 5 year old Roth IRA, and you roll over a Roth 403b into you Roth IRA. When can you withdraw the rolled over contributions and also earning that were rolled in?

It feels like if you are starting a Roth at age 55 or greater…well that is good ( Bette late than never) but it seems like your bigger failure is not receiving any guidance by that age and especially if you are that behind.

Plenty of explanations out there showing IRA vs. Roth IRA is a wash provided comparable tax rates then/now. It's all about the tax rates, at least the one guy pointed this out halfway through the show. If young people can spare the cash for IRA or Roth IRA (or 401k) and they are also not yet earning enough to be in a relatively high tax bracket, definitely should choose Roth option. Love the idea of giving the gift of funding an IRA for your children who are just starting to earn a paycheck and either can't or don't won't to sacrifice to fund it themselves. Did this for my kids. P.S. Funny seeing them mocking those who predict interest rates will go up - four years ago.

If you have a Roth 401k can you withdrawal from that at 59.5 without any five year look back? I am not talking converting it to an IRA.

Thanks guys I recently started contributing to my employers Roth 401k I envisioned rolling these funds into my own Roth IRA and having the 5 year rule satisfied via the 401K, guess I was wrong??? I am a high income wage earner any solutions for getting a Roth IRA open to eventually receive these funds?

Two individuals at full retirement age. They both apply for social security and Medicare benefits. One have 3 million in a traditional 401K and the other have 3 million in a Roth 401k. Would they be taxed the same on their social security and will their Medicare payments be the same? Thanks

So you need to move a roth 401k to a roth ira, in order to access the funds in your roth 401k? Why can’t you just wd straight from your roth 401 k?

Is it possible to open a Roth IRA (new single account) and take portions of a traditional IRA (1 single account) to convert those portions over several years into the Roth IRA while paying the tax for converting each portion during those years? Say $100,000 in Traditional IRA converted into Roth IRA over 5 years by converting $20,000 each year from the same IRA account?

The IRS says they look at withdrawals as contributions first, than conversions, than earning. So it should not be that huge an issue

The 5 year rule relates to distributions not conversions correct? I'm looking to convert from roth 401k to roth ira due to change of employer. I do not and will not need to take any distributions for years. I just want to make sure I'm not taking a penalty after already contributing taxed income. Also, I cannot open a Roth IRA due to income limits. I can't open a Roth IRA now and hold it for 5 years. What are my options?

So if you switch from a pre-tax to roth, how would paying tax work? Would you still pay tax ok the amount that you transfer at the time?

I dont understand the name of this episode! It seems like this episode's name should be related to IRA or Roth Roll-over rather than "The Roth 401(k) Tax Trap" as the so called tax trap relates to rolling over Roth funds into an IRA, not being in a 401K. The big problems is not knowing in time. As mentioned, start a Roth IRA asap! If you find out as you are retiring, leave some money in the 401K for the 5 years as the IRA seasons. If you already rolled, pull from your trad IRA, it is taxed, but it would be taxed anyway.

So how much can you safely pull from these annually in retirement?

Is it worth transferring traditional IRA to Roth IRA if the age is 72 ?

I've always said this, though the 401k is one of the safest retirement plans, it is not a particularly a good option. Better strategy; Live below your means, Invest 20-30% of your income into the stock market but of course, be well informed about where you want to put your money... I made my first million earlier this year from stocks alone with about 550k after I dissolved my 401k and added little cash (through the help of a pro though). Greatest decision I ever made.

It's your life itself. You know, I want to check out. You know what the 11 days are lying? No sleep, I don't eat 1 day. Fine. Woke my happy a** up and yo cause I got all my knees surrendered when I knew my kids were in the mix too. How bad can it get? I never had a friend. You'll really have a family no one chose me. Knowing loved me, I was a vessel yellow for their desires. They're manifestations and they've everybody who they're dead and how it's kind of like me, Jack, it's nobody else makes me. I just want to blanket. That's right under the boardwalk. Gotta get a candle.

So I can open a Roth IRA and a Roth 401k I'm 53

This video doesn't make any sense about the Roth 401K tax trap. I'd be more concerned if my financial advisor wasn't aware that Roth IRAs and 401K, Roth and pretax are under different tax codes and are not the same investment instrument. Even then I would still consult with a tax attorney or CPA before doing a transfer because of the constant changes in the Federal Register, IRS rulings and tax law interpretation for something so important (my retirement portfolio). If a person already had a personal Roth IRA setup for a decade or longer and they have been contributing to their Roth IRA and then they start a Roth 401K they can rollover the Roth 401K when they retire or leave their work and can withdraw after 59.5 without worrying about the 5 year rule. If a person has only The Roth 401K they can withdraw funds at the appropriate age without consequence. If they decide that they want better investment options they can setup a private Roth IRA, keep 5 or more years of expected withdrawal funds in the Roth 401K and transfer the balance to their new Roth IRA and use those Roth 401K funds. Heck they can put any amount ($1.00) in the new Roth and just keep most of their money in the Roth 401K if they're concerned about a future financial emergency in the upcoming 5 tax years. Then later transfer the Roth 401K balance to their private Roth after the 5 year period. The only issue I can see is that they would need to have wages when they setup their new personal Roth IRA. That or have a spousal Roth account. In most cases that would be unnecessary unless the worker retires on December and then tries to setup a personal Roth IRA after April 15 the next year. Even if they missed the opportunity to setup a Roth IRA from previous year's income they could apply for a minimum wage job, work for a day, then quit or put a two week notice and put $1 in a new Roth IRA once you get your first/one-time check. So I guess it might be an issue if you aren't aware of the tax law, but there are plenty of workarounds. If you fail to prepare then prepare to fail.

click bait

Those who retire early may have a golden opportunity to fund their Roth via conversions, however they may want to limit income to qualify for ACA Obama-don't-care insurance subsidies before Medicare (which may require after tax monies to carry them through).

Remember, the federal taxes you paid today were spent 10 years ago.

Click bait. Waste of time.

Contribute to both Roth IRA and Roth 401k

Real Estate is the only way very simple and reall

Click bait...Is that a tax trap??? Guys do better with your time. Simple 5 years rule not a trap.

Could never subscribe to these people