For US expats, the ability to roll over a Roth 401(k) to a Roth IRA offers greater flexibility in investment selection, withdrawal timing, and cross-border retirement planning.
A Roth IRA allows qualified withdrawals to be made tax-free and, unlike a Roth 401(k), is not subject to required minimum distributions under current legislation. However, if you intend to roll over a Roth 401k to a Roth IRA, the tax consequences must be clearly understood.
This guide explains the rollover process in detail, outlines when taxes may apply, and highlights contribution limits, withdrawal conditions, and the five-year rule—based on 2025 IRS regulations. It also addresses key considerations for US expats navigating international compliance and foreign tax treatment.
What You Will Learn
- Can you roll over a Roth 401(k) to a Roth IRA?
- What are the tax consequences of a Roth 401(k) rollover to a Roth IRA?
- If a Roth 401(k) rollover counts as a Roth IRA contribution
- How the five-year rule affects Roth IRA withdrawals post-rollover
- Can you roll over a traditional 401(k) to a Roth IRA?
Can You Roll Over a Roth 401(k) to a Roth IRA?
The Internal Revenue Service (IRS) permits rollovers from a Roth 401(k) to a Roth IRA. This process allows retirement assets to be transferred from an employer-sponsored account to an individual account, enabling greater control, investment choice, and simplified account consolidation—particularly valuable for internationally mobile individuals.
Both Roth 401(k)s and Roth IRAs are funded with post-tax contributions, which are not deductible from taxable income. As such, rollovers between these accounts are typically tax-free because the underlying tax treatment remains consistent.
While employee contributions are always fully vested and eligible for rollover, employer contributions can only be transferred once they are vested. The vesting period—often set at between three and five years—varies by plan. If an employee departs before full vesting, some or all of the employer-matched portion may be forfeited.
Contributions within a Roth IRA grow tax-free and, provided certain conditions are met, can be withdrawn without incurring income taxes or penalties. Original Roth IRA contributions may be accessed at any time, even before reaching age 59½. This offers a level of liquidity not available in traditional retirement plans.
Do You Pay Taxes When You Roll Over a Roth 401(k) to a Roth IRA?
Whether tax applies to a Roth 401(k) rollover depends primarily on how the rollover is executed—direct or indirect:
Direct Rollover
In a direct rollover, the plan administrator transfers funds directly from the Roth 401(k) to a Roth IRA. Because both accounts are funded with post-tax contributions, the transfer is typically tax-free.
This is the preferred and IRS-recommended method, particularly for expatriates and those seeking to avoid unnecessary tax withholding or penalties.
Indirect Rollover
In an indirect rollover, the plan issues a cheque payable to you. You must then deposit the full rollover amount into a Roth IRA within 60 calendar days. Failure to do so may result in:
- Income tax on the unreturned amount
- A 10% early withdrawal penalty if you are under age 59½
- A mandatory 20% federal income tax withholding applies to indirect rollovers, regardless of your intention to complete the transfer. This withheld amount may be reclaimed when filing your annual tax return—but only if you deposit the full gross distribution (including the withheld portion) into a Roth IRA within 60 days.
Example:
If you initiate a $20,000 indirect rollover, you will receive only $16,000, as 20% is withheld for taxes.
To complete the rollover and avoid penalties, you must contribute the full $20,000—meaning you will need to supply the remaining $4,000 from other funds. If you only deposit the $16,000, the IRS may treat the missing $4,000 as a non-qualified distribution.
Note: Indirect rollovers are administratively burdensome, carry additional risk, and are not advisable for US expats who may face dual-reporting or compliance issues across tax jurisdictions.
Does a Roth 401(k) Rollover Count as a Contribution?
A rollover from a Roth 401(k) to a Roth IRA is not treated as a contribution. It is classified as a direct transfer of previously taxed retirement funds and is therefore not subject to the annual Roth IRA contribution limit.
This means you may roll over your full Roth 401(k) balance to a Roth IRA and still make annual contributions—provided you meet income eligibility requirements. For 2025, contribution limits are:
- $7,000 for individuals under age 50
- $8,000 for those aged 50 or older (catch-up provision)
These limits apply across all IRAs combined—traditional and Roth.
Does Your Income Affect Roth IRA Contributions?
Although a Roth 401(k) rollover does not count toward contribution limits, any new Roth IRA contributions are subject to income-based eligibility rules. These are based on your modified adjusted gross income (MAGI) and tax filing status.
For 2025, contribution eligibility is as follows:
| Filing Status | Full Contribution if MAGI ≤ | Phase-Out Range | No Contribution if MAGI ≥ |
|---|---|---|---|
| Single / Head of Household | $150,000 | $150,000–$165,000 | $165,000 |
| Married Filing Jointly | $236,000 | $236,000–$246,000 | $246,000 |
Note: If your income falls within the phase-out range, your allowable contribution must be calculated using the IRS worksheet in Publication 590-A or determined with the assistance of a qualified tax adviser.
Can You Roll Over a Roth 401(k) to a Roth IRA and Withdraw Contributions?
A Roth IRA allows you to withdraw your original contributions at any time, free of tax and penalties, regardless of your age or the account’s age. However, withdrawals of investment earnings are subject to specific conditions.
To withdraw earnings tax-free, both of the following must apply:
- You are at least age 59½.
- Your Roth IRA has been open for at least five tax years.
This is known as the five-year rule. The five-year period begins on 1 January of the tax year in which you make your first contribution, not the actual contribution date. For example, a contribution made on 15 May 2025 is deemed to have started its five-year clock on 1 January 2025.
If you roll over funds from a Roth 401(k) that has already met its own five-year holding period into a new Roth IRA, the five-year clock restarts for those specific rollover funds, unless the receiving Roth IRA already meets the five-year requirement.
Note: Each Roth IRA contribution or conversion may carry a separate five-year period for tax-free treatment of earnings.
Can You Rollover a Traditional 401(k) to a Roth IRA?
Yes. A traditional 401(k) can be rolled over to a Roth IRA through a Roth conversion, which is a taxable event.
Traditional 401(k) contributions are made on a pre-tax basis, whereas Roth IRA contributions are made with after-tax income. As a result, the full amount converted from a traditional 401(k) is treated as ordinary income in the year of the conversion and taxed accordingly.
If you hold both a traditional and a Roth 401(k), it is possible to consolidate your retirement savings by transferring funds from both accounts into a Roth IRA. However, only the Roth 401(k) portion will transfer tax-free. The traditional 401(k) portion will trigger a tax liability upon conversion.
Strategic planning is advised before initiating a Roth conversion, particularly for US expats who may benefit from lower tax rates abroad or who are subject to multiple tax jurisdictions.
What Roth 401(k) to Roth IRA Rollovers Mean for US Expats
Rolling over a Roth 401(k) to a Roth IRA while residing abroad may offer improved investment flexibility and long-term tax advantages. However, such transfers also raise significant cross-border tax and compliance considerations that US expatriates must carefully evaluate.
Foreign Taxation of Roth IRA Earning
Although the IRS does not tax qualified Roth IRA withdrawals, this favourable treatment may not be recognised in your country of residence.
In jurisdictions that do not have a Double Taxation Agreement (DTA) with the United States—or where the treaty does not classify Roth IRAs as pensions—investment growth and withdrawals may be taxed locally.
Roth IRAs are not always exempt from foreign income tax. Verify how your host country treats foreign retirement accounts before initiating a rollover.
Double Taxation Agreement (DTA) Considerations
Under certain DTAs, such as the US–UK tax treaty, Roth IRAs may be treated as pension schemes. However, interpretations vary, particularly regarding:
- The treatment of contributions versus earnings.
- Timing of withdrawals.
- Whether rollovers are considered taxable events locally.
It is essential to seek country-specific tax advice prior to executing a rollover, especially in early withdrawal scenarios or if you reside in a non-DTA country.
FATCA and FBAR Compliance
Roth IRAs are not reportable under the Foreign Bank Account Report (FBAR) rules. However, substantial rollover activity may still draw attention from the IRS or financial institutions under FATCA (Foreign Account Tax Compliance Act) obligations.
Furthermore, your foreign financial institution or tax adviser may be required to report the existence or movement of funds between accounts. Ensure all retirement transfers are compliant with both US and foreign reporting standards.
Currency and Timing Risks
For expats, large rollovers may require foreign exchange conversions, introducing currency risk—particularly if the rollover is timed near tax-year cut-off dates in either jurisdiction.
It is advisable to coordinate rollover timing to avoid double-reporting or adverse currency fluctuations.
Residency Impact on Contribution Eligibility
While US citizens living abroad may contribute to a Roth IRA, this is only permitted if they receive US-source earned income. Passive income—such as rental income, dividends, or interest earned abroad—does not qualify.
Ensure you maintain eligible income streams before planning Roth IRA contributions while overseas.
Complimentary Roth 401(k) Rollover Strategy Consultation
Rolling over your Roth 401(k) to a Roth IRA while living abroad can unlock greater investment flexibility and eliminate future required minimum distributions—but without careful structuring, it may trigger avoidable tax exposure or compliance issues across jurisdictions. In a complimentary consultation with Titan Wealth International, you will:
- Determine whether a Roth IRA rollover aligns with your residency status, income profile, and retirement objectives.
- Receive expert guidance on IRS rollover rules, the five-year rule, and potential local tax treatment under your host country’s tax treaty with the US.
- Gain a tailored rollover and contribution strategy designed to maximise tax efficiency and long-term investment growth across borders.
Key Takeaway
Rolling over a Roth 401(k) to a Roth IRA is a strategic option for US expatriates seeking greater flexibility, expanded investment options, and the ability to continue contributing to retirement savings while living abroad.
When executed as a direct rollover, this transfer is generally tax-free because both accounts are funded with after-tax income. However, withdrawals from a Roth IRA may be subject to income tax and early withdrawal penalties if the account has been open for fewer than five tax years or if you are under age 59½.
At Titan Wealth International, we offer a dedicated 401(k) rollover service designed for internationally mobile individuals. Our specialist advisers provide a complimentary assessment to review your retirement accounts, evaluate your financial goals, and structure a tailored rollover plan that maximises tax efficiency while ensuring full compliance across jurisdictions.
