At all times and at any age, you can withdraw as much as you have contributed to your Roth IRA without tax or penalty. Unfortunately, your Roth 401(k), Roth 403(b) or governmental 457(b) plan is not given the same treatment.

The IRS calls your Roth 401(k) a designated Roth account. A designated Roth account is a separate account in a 401(k), 403(b), or governmental 457(b) plan that holds your Roth deferrals and contributions.

Qualified distributions from designated Roth accounts are defined by the IRS as:

A qualified distribution from a designated Roth account is excludable from gross income. A qualified distribution is one that occurs at least five years after the year of the employee’s first designated Roth contribution (counting the first year as part of the five) and is made:

• On or after attainment of age 59½,
• On account of the employee’s disability, or
• On or after the employee’s death.

For non-qualified distributions from a designated Roth account, “The distribution will be treated as coming pro-rata from earnings and contributions (basis).”

This is different from a Roth IRA. In a Roth IRA, distributions are assumed to come from contribution basis first and earnings last.

However, in a designated Roth account such as a Roth 401(k), each early distribution is treated as coming part from contribution basis and part from earnings.

People who want to withdraw from their Roth 401(k) before age 59 1/2 benefit from rolling funds from their Roth 401(k) to their Roth IRA prior to withdrawal.

Oddly, rolling all the funds of your Roth 401(k) to your Roth IRA before you distribute makes less of the withdrawal taxable. Because Roth to Roth rollovers are not taxable events, there is little downside to this strategy.

Photo by cottonbro studio from Pexels. Image has been cropped.