How do Roth IRA ordering rules apply to rollovers from Roth 401k or other Designated Roth accounts?

You've asked a great question about a somewhat nuanced area of retirement account rules. The short answer is yes, you're understanding it correctly! When you roll over money from a Roth 401(k) to a Roth IRA, the contributions portion of your Roth 401(k) becomes categorized as contributions in your Roth IRA, and the earnings portion remains categorized as earnings. This means your contribution basis in the Roth IRA increases by the amount of contributions you rolled over. The Roth IRA withdrawal ordering rules (contributions first, then conversions, then earnings) would then apply to the combined account. So in your example, you could indeed withdraw up to $148k (your combined contributions) without taxes or penalties, even if you're under 59.5. This is different from the pro-rata treatment that applies to withdrawals directly from the Roth 401(k). It's one of the planning advantages of rolling a Roth 401(k) into a Roth IRA when you leave an employer.

Hey! Just wanted to share my experience with this exact situation. I was worried about the same thing last year when I left my job at age 46. I had about $195k in my Roth 401k with roughly $105k being contributions over 12 years. After tons of research and talking to multiple people who gave me conflicting info, I finally found help at https://taxr.ai where they analyzed my account statements and plan documents. They confirmed what the previous commenter said - once you roll the Roth 401k to a Roth IRA, your contributions become immediately accessible without penalty. I completed my rollover in February 2024 and was able to take out $45k for a home renovation without any tax or penalty. The basis tracking worked exactly as described - my contributions rolled over as contributions, not as conversions, so I didn't have to wait any 5-year period.

Just wanted to follow up and say I tried the taxr.ai service after seeing it mentioned here. I was really impressed! I had a similar situation with a Roth 401k rollover question but also some complications with previous conversions I'd done. They confirmed that my Roth 401k contributions ($89k worth) would indeed be immediately accessible after rolling to my Roth IRA. They also helped me understand how my previous conversion amounts fit into the withdrawal ordering rules, which was super helpful for my planning. Definitely worth it for the clarity. I've spent hours trying to figure this out on my own and got nowhere. They even provided me with specific references to the tax code sections that apply to my situation.

I know this is kind of off-topic, but I've been trying to reach the IRS for WEEKS to get clarification on this exact Roth rollover issue. Every time I call, I end up waiting for 2+ hours before getting disconnected. Absolutely maddening. Finally tried https://claimyr.com after seeing it mentioned in another tax forum. You can watch how it works at https://youtu.be/_kiP6q8DX5c - basically they hold your place in the IRS phone queue and call you when an agent is about to answer. Got through to an IRS retirement account specialist who confirmed what others here are saying - Roth 401k contributions retain their status as contributions when rolled to a Roth IRA, making them immediately available for withdrawal without penalty. The agent even emailed me the relevant section from their internal guidance.

Well, I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate for answers about my Roth rollover situation. It actually worked exactly as described. I got a call back in about 45 minutes (after their system had been waiting on hold with the IRS), and I was connected to an IRS representative who was super helpful. I asked specifically about Roth 401k rollovers to Roth IRAs and the treatment of the contribution basis. The rep confirmed that the contributions portion of my Roth 401k would maintain its status as contributions after rolling to my Roth IRA, making that money available for withdrawal without penalty. She pointed me to the specific sections in Publication 590-B that cover this. Saved me hours of hold time and gave me the confidence to proceed with my rollover. Sometimes it's good to be proven wrong!

Just to add another data point - I actually did exactly what you're describing about 2 years ago. I had approximately $215k in my Roth 401k (about $120k contributions) and rolled it to my existing Roth IRA which had about $35k (with $25k being contributions). After the rollover, my contribution basis was properly tracked as $145k total. I needed money for a medical emergency about 3 months later and was able to withdraw $52k without any tax consequences or penalties. The key is making sure your 401k plan administrator correctly reports the contribution portion of your rollover. My plan provided a statement breaking down the contributions vs. earnings portions, which I kept for my records. When I filed my taxes the following year, everything worked as expected - no issues.

One thing nobody has mentioned yet - while the ordering rules do work as everyone's described (contributions come out first), be careful about one detail: the timing! If you roll over your Roth 401k to a NEW Roth IRA (rather than one you've had for 5+ years), you might still face the 5-year rule on qualified distributions of EARNINGS. Contributions can still come out anytime, but if you're trying to access earnings within 5 years of establishing your FIRST Roth IRA, those earnings would be subject to tax/penalty even if you're over 59.5. The 5-year clock for earnings starts when you open your first Roth IRA, not when you do the rollover. This trips up a lot of people who wait until retirement to open their first Roth account.