What this calculator does
It runs both clocks, because a Roth 401(k) and a Roth IRA keep separate ones and only one of them survives a rollover. The left panel shows when growth becomes tax free if you leave the money where it is. The right panel shows what happens if you move it.
The two clocks
The plan clock belongs to the plan. It starts on 1 January of the year of your first designated Roth contribution to that particular employer’s plan. Change employer and the new plan starts its own from zero, however long you have been paying into Roth 401(k)s elsewhere.
The IRA clock belongs to you. It starts on 1 January of the year you first put money into any Roth IRA, at any provider, and it never restarts. Open six more accounts and they all inherit it. Close the original and it still stands.
What a rollover actually does
Two confident and contradictory answers circulate on this, and neither is right. The question is whether the distribution coming out of the plan is itself qualified.
If it is, meaning your plan clock has run and you are already 59 and a half, the entire amount arrives in the Roth IRA as basis. Basis comes out tax free at any time, so a brand-new receiving account costs you nothing.
If it is not, only the contribution portion becomes basis. The growth stays growth and lands under the receiving account’s clock. That is the case where years are genuinely lost, and it needs you to be past 59 and a half with a plan clock that has not finished.
What each input means
- First Roth 401(k) contribution. The year, to your current employer’s plan. Payroll or the plan administrator can confirm it.
- First Roth IRA contribution. The year, at any provider, including accounts you have since closed. Leave it blank if you have never had one and the calculator prices opening one today.
- Year you were born. For the 59 and a half half of the test.
Frequently asked questions
What is the Roth five-year rule?
Roth growth comes out untaxed only when two conditions hold at once: you are 59 and a half, and a 5-year clock has run. Everybody remembers the age. The clock is where money is lost, because there is more than one of them.
Do a Roth 401(k) and a Roth IRA share a clock?
No, and this is the whole point of the calculator. A Roth 401(k) clock belongs to the plan and starts with your first designated Roth contribution to that plan, so changing employer starts a new one. A Roth IRA clock belongs to you, starts with your first contribution to any Roth IRA, and never restarts.
Does rolling a Roth 401(k) into a Roth IRA restart the clock?
It depends on whether the distribution out of the plan was itself qualified. If it was, the entire rolled amount becomes basis in the receiving IRA and is reachable tax free immediately, however new that account is. If it was not, your existing growth stays growth and moves under the receiving account’s clock, which may be younger than the plan’s.
Who actually gets caught by this?
People past 59 and a half whose plan clock has not finished. That is more common than it sounds, because many plans added a Roth option only recently and people often switch to Roth contributions late in their careers. Anybody too young for the age test is unaffected, since the age binds long after any clock.
How do I fix it?
Open a Roth IRA now and put in whatever the provider’s minimum is. The clock starts on 1 January of that year and runs whether or not you ever add to it, so a $50 contribution starts it exactly as well as a maximum one. It cannot be backdated, which is why doing it years early is the entire trick.
Why does the calculator work in years rather than dates?
Because the rule counts five taxable years, not five years from the date. Money paid in during December counts the whole of that year, so a clock can be satisfied in a little over four years. Working in years is what makes that correct rather than approximately correct.
Are my own contributions at risk?
No. Contributions are money you already paid tax on and are never taxed again. In a Roth IRA they come out first, at any time, under the ordering rules. Everything on this page is about growth.
Read more
The full explanation, including the pro-rata rule that makes a non-qualified Roth 401(k) withdrawal more expensive than the same withdrawal from a Roth IRA, is in the Roth 401(k) five-year rule. For choosing between the account types in the first place, 401(k) vs Roth 401(k) vs traditional IRA vs Roth IRA. For moving a plan, transferring a 401(k) from a previous employer.
A guide, not tax advice. Your plan document governs what your plan allows, and an unusual situation is worth an accountant rather than a calculator.