Designated Roth Account and Roth IRA Portability
By Ben Maas, CIS, CIP, CISP
I have a client who would like to roll over assets from his designated Roth account into a Roth IRA. His MAGI is too high to make a regular contribution to a Roth IRA. Can my client still perform the rollover into the Roth IRA even though he’s not eligible to contribute?
Yes. Your client may establish a Roth IRA and roll over an eligible rollover distribution from a designated Roth account to that Roth IRA (or to an existing Roth IRA) even if he is not eligible to make regular contributions because of the MAGI limits.
I have a client who is 62 years old. He began making designated Roth contributions under his employer’s 401(k) plan in 2010. He wants to roll over his designated Roth assets to a Roth IRA at our institution. He opened his Roth IRA with us in 2019, with a current-year contribution. In this case, when does the five-year period for determining qualified distributions from a Roth IRA begin?
Even though your client is rolling over a qualified distribution (five-year period has been met and he is age 59½ or older) from his designated Roth account, the five-year period for the Roth IRA began January 1, 2019, and will not be met until January 1, 2024. As a result, any distributions taken from the Roth IRA before that date will be nonqualified. But the entire amount of any designated Roth account qualified distribution will be treated as Roth IRA contributions (basis) when rolled over. As long as any subsequent distribution does not exceed the amount rolled over and the amount of the 2019 current-year Roth IRA contribution, it will be tax-and-penalty-free.
I have a client with a Roth IRA that contains only amounts attributable to a rollover from a designated Roth account that she had with a prior employer. She now wants to roll over these assets from her Roth IRA to the designated Roth account with her new employer. May she do so?
No. Any amounts distributed from a Roth IRA may be rolled over or transferred only to another Roth IRA and may not be rolled over to a designated Roth account. This rule applies even if the Roth IRA contains only amounts attributable to a rollover distribution from a designated Roth account.
