Ask the Expert: Do Roths have required minimum distributions?
In a recent column, you wrote "if your 401(k) includes a designated Roth account, you must take RMDs from the Roth." Can you please clarify this? Everything I read tells me there is no required minimum distribution (RMD) for a Roth.
There's more than one type of Roth account, and each has its own rules.
You're right in thinking that a person who owns a Roth IRA is never required to take a distribution from the account. But the rules are different for Roth IRA beneficiaries. Most people who inherit a Roth IRA now must empty the account within 10 years of its original owner's death.
The rules are also different — and more complicated — when it comes to Roth accounts that are a designated part of a 401(k) plan. That's what my earlier column was about.
Unlike Roth IRAs, a Roth 401(k) account is subject to RMDs, starting at age 72. A "qualified" Roth 401(k) RMD is tax-free — but there's a whopping 50% penalty if you don't take it.
Your distribution is "qualified" if you're over 59½ years old and at least five years have passed since your first contribution to the Roth 401(k). This means if you made your first Roth 401(k) contribution in the year you turned 58, for example, you must wait until you're 63 to take a tax- and penalty-free withdrawal.
If you don't meet that five-year rule, you'll owe taxes on the investment earnings in the distribution (plus a 10% penalty if you're under 59½). The tax is prorated between your contributions and their earnings: if earnings represent 10% of your Roth 401(k) balance, for example, 10% of your unqualified distribution is taxable.
The bottom line
There's more than one type of Roth retirement account.
