Roth IRA and Roth 401(k) Help/Taxes

Submitted by Richie_Ho t3_10q9g9w in personalfinance

I am currently 23-years-old and I graduated university in May of 2021 in Computer Science, and I started working in 2022 and I am a bit confused on few things.

I currently have

a Roth IRA with Charles Schwab (opened in 2020 when I was a cashier)

a Roth 401(k) at Pension Edge (opened in 2022 when I worked as a bank teller)

a Roth 401(k) at Fidelity (opened in 2022 current job as an associate)

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I have two questions:

Last year in 2022, I contributed $10,000 in my Roth 401(k) then when I switched jobs I accidentally contributed $10,951 going over the IRS limit by $451. Can I just pay taxes twice when I file my taxes and call it a day, or is there a 6% penalty per year like for over-contributing in IRAs? I attempted contacting fidelity, pension edge, my hr and 401(k) but they keep giving me the roundabout.

Second question is can I roll over my roth 401(k) from my old employer to my roth ira at schwab and withdraw principal anytime similar to my roth ira. Do I have to manually keep track and save all the forms I get each year?

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meamemg t1_j6ooldd wrote

Fidelity should be able to return the excess contribution. I'd follow up with them. But yes, if you don't do anything you'll just pay income tax on the $451 this year, and then be taxed again in retirement.

You can roll over the old 401k to a Roth IRA. That is generally a good idea. The amount you contributed to the Roth 401k is treated as a Roth IRA contribution and you can withdrawal without taxes or penalties at any age.

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Richie_Ho OP t1_j6op55c wrote

Yeah fidelity ask me to contact, hr and hr tell me contact fidelity.... so i just pay that extra $40-60 on income tax just to save the headache. roth isn't tax in retirement i thought, only tradition, i just pay income taxes on $451 twice no? i just wanted to make sure there wasn't a wait period of 5 years or something if i roll over roth 401k to roth ira.

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meamemg t1_j6opsqo wrote

>Yeah fidelity ask me to contact, hr and hr tell me contact fidelity.... so i just pay that extra $40-60 on income tax just to save the headache

Get them both on the phone. It being Roth 401k makes it a huge mess. See last paragraph at https://fairmark.com/retirement/roth-accounts/designated-roth-accounts/contributions-over-the-limit/ You are going to have to pay the tax on the amount, when you withdrawal from the account. Huge mess and headache you don't want following you around for 40 years.

5 year rule applies to earnings, not contributions.

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Richie_Ho OP t1_j6oqzti wrote

I'm fully remote at my company and there was even an email stating they do not amend w-2s, my hr/401k department is outsourced to India, so it just as messy. I literally have to wait a week between emails to get a response and they just as clueless as me.... You think withdrawing like $500 would be enough as a regular distribution or should waiting 40+ years for this small problem be enough.

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meamemg t1_j6orygs wrote

You generally can't make a withdrawal while still working there. I'd continue to escelate within Fidelity and HR. Because a 401k is covered under ERISA, DOL might be able to assist as well: https://www.dol.gov/agencies/ebsa/about-ebsa/ask-a-question/ask-ebsa

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Richie_Ho OP t1_j6os69s wrote

alright thanks for all your help. a lot of great information, i tried to get all these sorted before april

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