First, you should save enough on your 401 (k) to get the employer's counterpart as a starting point. Then, once you've received the full consideration, it may make sense to consider diversifying your taxes through a Roth IRA if you meet income limits. One way to do this is to invest in Gold in your IRA. So to answer your first question, yes, it might make sense to open a Roth IRA at least five years before you plan to transfer your Roth 401 (k).
However, it is not enough to just open it. You have to make a contribution over the five-year period to get started. The problem is that not everyone is eligible to do so. Withdrawing money from your 401 (k) plan before you turn 59 and a half years old generally involves paying income taxes and a 10% early retirement fee. Depending on how much you plan to withdraw, this can be costly.
The best way to achieve a transfer to a Roth IRA or another Roth 401 (k) is from trustee to trustee. This guarantees a smooth transaction that should not be challenged later on by the IRS, which may worry about whether the transaction was made in full amount or in a timely manner. Since the Roth IRA to which you are transferring the funds has existed for more than five years, the total distribution transferred to the Roth IRA complies with the five-year rule for qualified distributions. Because of the tax benefits of Roth IRAs, such as the ability for your money to grow tax-free, you may want to take advantage of them while you're still eligible.
Your employer's matching contributions are only yours if you stay with the company for a certain period of time. However, if you decide to have the funds sent instead of directly to the new trustee, you can transfer the entire distribution to a Roth IRA within 60 days of receiving them. In general, it is best to transfer a Roth 401 (k) to a Roth IRA, especially since the investment options within an IRA are usually broader and better than those of a 401 (k) plan. A Roth IRA allows you to make after-tax contributions, but you won't pay taxes on earnings, including dividends, capital gains, and accrued interest.
You won't receive an additional consideration from the company for these additional contributions, but you'll continue to make pre-tax contributions to your retirement savings. However, the same treatment doesn't apply when a Roth 401 (k) is transferred to a new Roth IRA. Some companies pay a portion of their employees' pre-tax contributions up to a certain amount, which is usually a percentage of their salary. What sets them apart from traditional IRAs is that they are funded with after-tax money, making qualified distributions tax-free.
Once you've made enough contributions to the 401 (k) plan to meet the company's counterpart and you've reached the annual Roth IRA contribution limit, go back to your 401 (k) and contribute whatever additional amount you can this year. If you choose to transfer funds to an IRA, you must transfer funds from the Roth 401 (k) to a Roth IRA. While there are income level limitations when contributing to a Roth IRA, a person can continue to contribute to a Roth 401 (k) if the option is available in the 401 (k) offered. This is particularly the case if a Roth IRA does not yet exist, as the five-year retention period would start all over again in this scenario.
