What are the Roth 401(k) withdrawal rules?


Quick Answer

Roth 401(k) withdrawals are either qualified or unqualified, depending on the age of the account holder and the number of years since the first contribution, explains Investopedia. The earnings portion of unqualified withdrawals is taxable and possibly subject to a 10 percent penalty, states Oblivious Investor.

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Full Answer

Qualified Roth 401(k) withdrawals are non-taxable and never subject to the 10 percent penalty, states Oblivious Investor. For Roth 401(k) withdrawals to qualify, the account holder must be over 59.5 years of age, disabled or dead. Additionally, it must be five calendar years from the first day the account holder made a Roth contribution to her retirement plan. A Roth 401(k) account holder still employed by the employer that offered her 401(k) account may only make withdrawals if she applies for a financial hardship distribution, a special in-service distribution or a loan.

Roth 401(k) accounts differ from traditional 401(k) accounts in tax terms, explains Forbes. Contributors pay into Roth 401(k) accounts, as with other Roth accounts, from after-tax income. Contributors pay into traditional 401(k) accounts from before-tax income and defer the tax until they withdraw from that 401(k) during retirement. Forbes recommends most people to stick to traditional 401(k) accounts unless they expect to have a higher income during retirement or if they are young and have years of interest-earning potential in their 401(k) accounts.

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