Roth 401(k) Knowledgebase
Qualified Roth 401(k) Distributions
Qualified Roth 401(k) Distributions The tax rules for distributions from Roth 401(k) accounts differ significantly from those of traditional pre-tax 401(k) accounts. No income tax applies to qualified distributions from a Roth 401(k) account since taxes were paid at the time of the original contributions.
Five-year Rule The five-year rule is satisfied at the end of the 5-year taxable period during which the participant’s deferral is first deposited to the Roth 401(k) account. This means that any deferral contributed within calendar year 2008, even if the first contribution date is December 31, 2008, is considered qualified as of January 1, 2013.
Qualified Purpose Rule A distribution from a Roth 401(k) account satisfies the qualified purpose rule only if the distribution is attributable to: 1) the participant’s attainment of age 59½, 2) the participant’s disability, or 3) the participant’s death.
There are no exceptions to these rules, such as the exception for first time home buyers that applies to Roth IRAs. The difference between the rules for qualified Roth 401(k) distributions and qualified Roth IRA distributions are significant.