Rolling Over 401(k) Employer Matches: Can They Go to a Roth IRA to Save on Taxes and RMDs Later?

So, you're thinking about rolling over your 401(k) employer matches to a Roth IRA, huh? Let's dive into the details and see if it's a smart move for you.

First, let's talk about the basics. Employer matching contributions are always deposited into a traditional 401(k) account, even if your own contributions are made to a Roth 401(k). This is because employer matches are considered pre-tax contributions. When you roll over a traditional 401(k) to a Roth IRA, the employer's matching contributions are also rolled over, but they are still considered pre-tax, and you will owe taxes on them when you withdraw them from the Roth IRA.

Now, let's discuss the five-year rule for Roth IRAs. This rule states that to withdraw earnings from a Roth IRA without penalty, the account must be at least five years old. This rule applies to both contributions and converted funds. When funds are rolled over from a Roth 401(k) to an existing Roth IRA, the rolled-over funds inherit the same timing as the Roth IRA. If you do not have an existing Roth IRA and need to establish one for purposes of the rollover, the five-year period begins the year when the new Roth IRA is opened, regardless of how long you have been contributing to the Roth 401(k). If you rolled a traditional 401(k) over to a Roth IRA, the clock starts ticking from the date when those funds hit the Roth.