Roth 401k question

[longtime_lurker]

Hey folks

I was wondering if I ever needed to, could I take out my roth 401k contribution out without penalty? I like my investment choices at Charles Schwab, so I'd rather not have to rollover my 401k into IRA if I don't have too. 

[compassion101]

Yes, you can withdraw the amount of your contributions from a roth ira or a roth 401k. I've heard that some companies may have a stipulation on that though so if you still work for them check from the company side (plan administrator)  on the 401k.

[heyitsyeh]

Yea, I would check with your company, it may impact their match (not so much their contribution amount but the vesting/forfeiture policy)

[nightglider]

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@longtime_lurker wrote:

Hey folks

I was wondering if I ever needed to, could I take out my roth 401k contribution out without penalty? I like my investment choices at Charles Schwab, so I'd rather not have to rollover my 401k into IRA if I don't have too. 

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I'm not sure what your hesitation is. Charles Schwab offers IRA's, so when the time comes, you can simply roll your 401k into an IRA with them.

[longtime_lurker]

Thank you to everyone for the replies.

@Compasison101, I will definitely call my company and see, thanks.

@heyitsyeh, I'm 100% vested and I contribute 10% to roth and 4% to trad - they match 4% which I've noticed goes in the traditional 401k balance. Would that still affect me?

@nightglider, my hesitation is if an emergency comes up, I am wondering if I can just withdraw what I need from my roth 401k and let the rest sit, or do I need to rollover everything to an IRA and then withdraw? I did look and you're right, I'm sure I could get the same investment choices that way, so thank you, but I'm hoping I don't need to have multiple investment accounts to have the flexibility if I need it. I'm a college student so I don't exactly fit the picture of "needs multiple investment accounts".

I DO have an emergency fund in Discover online savings of 1k, but I like to know I could get access to my money if something crazy happened (and I do the roth 401k instead of a roth ira contribution after the fact simply because it comes directly out of my check, and "out of sight, out of mind" is how I'm able to save).

[bada_bing]

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@longtime_lurker wrote:

Thank you to everyone for the replies.

@Compasison101, I will definitely call my company and see, thanks.

@heyitsyeh, I'm 100% vested and I contribute 10% to roth and 4% to trad - they match 4% which I've noticed goes in the traditional 401k balance. Would that still affect me?

@nightglider, my hesitation is if an emergency comes up, I am wondering if I can just withdraw what I need from my roth 401k and let the rest sit, or do I need to rollover everything to an IRA and then withdraw? I did look and you're right, I'm sure I could get the same investment choices that way, so thank you, but I'm hoping I don't need to have multiple investment accounts to have the flexibility if I need it. I'm a college student so I don't exactly fit the picture of "needs multiple investment accounts".

I DO have an emergency fund in Discover online savings of 1k, but I like to know I could get access to my money if something crazy happened (and I do the roth 401k instead of a roth ira contribution after the fact simply because it comes directly out of my check, and "out of sight, out of mind" is how I'm able to save).

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All employer matching contributions are counted as traditional (pre-tax) money, because of course they haven't been taxed when depositied. Anytime you do a rollover of a Roth 401K, it is worth the effort to make sure that the money gets segregated into pre-tax and after-tax(roth) money and put into separate accounts at the time of the rollover. Co-mingling pre & after tax money in an IRA can evolve into an accounting and tax nightmare years on down the line. At least my 401K plan at work (Fidelity) isn't very good about pointing out the differences of the money lumped into my single Roth 401K account, but the info is there if you dig a little.

I'm not sure if it depends on the individual 401K plan, but I know my plan at work lets me withdraw only Roth contributions that have been in the account for more than 5 years. I have thought of the >5 year contributions in my account as an additional source of emergency funds. Years ago I under-funded my emergency fund savings (by the criteria defined by programs like Dave Ramsey) and used the extra money to max out my roth 401K contributions. Now, more than 5 years later, I have a pool of money that might be earmarked as "emergency funds" but is tax & bankruptcy sheltered in my Roth 401K. I've never had to use the Roth funds as "emergency" funds, so it's been mostly a mental exercise. The longer the time frame anticipated, the more the benefit of having "emergency funds" in a Roth 401K. It depends on how old a person is and how long they intend to be a participating employee of a plan whether intentionally stashing "emergency funds" in a 401K works out as opposed to having the funds where they are more accessible. I know in my case, it was good to have a little additional hurdle to withdrawing the money. If it had been in a regular savings account, it probably would have been spent several times over by now.