3789 / Are amounts rolled over to a Roth 401(k) subject to distribution restrictions after the rollover?
Yes. Although the American Taxpayer Relief Act of 2012 expanded the rules to allow rollovers from traditional 401(k) accounts to Roth 401(k) accounts of otherwise nondistributable amounts, the IRS has issued guidance providing that distribution restrictions will still apply after such amounts are rolled over.
Any amount that is rolled over from a traditional 401(k) to a Roth 401(k) remains subject to the same distribution restrictions that applied to the amounts before the rollover.1 As a result, if an individual makes a rollover from a traditional 401(k) to a Roth 401(k) before reaching age 59½, for example, the rolled over amounts cannot be withdrawn from the Roth 401(k) on a penalty-free basis unless one of the other events described in IRC Section 401(k)(2)(B) has occurred (i.e., unless he or she reaches age 59½ or there has been a separation from service, death or disability).
1. Notice 2013-74, 2013-52 IRB 819.