I agree with your math and for a distribution of 50% (200k), pro rating the gains would result in the 1099R showing 50k taxable in Box 2a, 150k basis recovery in Box 5, but because the 1099R Inst. state that Box 10 need not be completed when 72t is waived (age 55 exception), we won't know how the plan accounting rules determined how much came from the 2 year old IRR. The plan accounting rules will not be evident in most cases and will vary by plan. Box 10 would otherwise have provided the amount of the distribution coming from the 2 year old IRR, and that amount would not be subject to penalty later on if the rest of the Roth 401k was directly rolled into a Roth IRA and then distributed from the Roth IRA under the ordering rules.The Rule of 55 wiki says: "For non-qualified withdrawals, earnings and basis are pro-rata." But what happens if there are different kinds of basis?You might title the chart - "Designated Roth distributions for participants" if you prefer that beneficiaries are not included.
For both rows in first column you might add - "Penalty only on taxable portion of IRRs held < 5 years".
For example, suppose you've made regular Roth contributions of $100,000, did a taxable IRR of $100,000 six years ago, did another taxable IRR of $100,000 two years ago, and have $100,000 in earnings. A $200,000 withdrawal today will include $150,000 of basis, but which of the three kinds of basis is it composed of? Is that even specified?
I could make up some "logical" answers, such as maybe all three kinds of basis come out pro-rata. But what's the official answer?
At that point we are back to our prior discussion around Notice 2010-84 and Appendix C in Pub 590B, which we determined fails to sync up with 8606 Inst to treat IRRs as regular Roth basis, when they should be conversion basis.
More likely, a participant will be doing a direct rollover of that Roth 401k balance to a Roth IRA, rather than a distribution to the participant. The 1099R Inst for that H coded 1099R does NOT require Box 10 to be completed, therefore the amount of these 2 IRRs that are still in the plan (if any) rather than rolled out to the Roth IRA will not be evident from the 1099R. Access to the plan statement might provide the answer, otherwise pro rating the rollover amount with the total plan balance components would seem equitable.
This question illustrates that plan accounting procedures will influence which components of the plan are distributed when there is a partial distribution or rollover, therefore taking distributions directly from the plan will be subject to the 1099R. Conversely, the Roth IRA owner is responsible for their own Roth IRA accounting, the 1099R for a Roth IRA distribution will not provide much data, and the ordering rules determine which components have been distributed.
Statistics: Posted by Alan S. — Mon Sep 22, 2025 1:59 pm — Replies 71 — Views 4084