Roth IRA early withdrawl

[RenoJay]

I had a self-directed Roth IRA where I had rolled over the majority of funds to Vanguard a couple years ago. But there was still ~$20 left in the self-directed IRA.

The self-directed company sent me a check, but I neglected to do anything with it during the 60 day roll over window, so I imagine I'll have to pay a 10% penalty.

Can someone confirm that the penalty I'll pay for early withdrawal is just on the $20, i.e. a $2 fee.

Thanks.

 

[njhowie]

Assuming you are under age 59 1/2, you'll pay a penalty and income tax only on the amount considered earnings/gains - nothing on original investment.

Wait for the tax form to show up from Vanguard.

Obviously not a big deal in the bigger scheme of things.

https://www.investopedia.com/ask/an...enalties-ira-or-roth-ira-early-withdrawal.asp

 

[Sunset]

The tax form will come from the old company, not Vanguard.

 

[SecondCor521]

Withdrawals from an IRA are deemed by the IRS to be from contributions first, then conversions, then earnings.

So the $20 they sent you will be deemed to be the first $20 from your first Roth IRA contribution, however many years ago that was.

Assuming you've contributed $20 or more to your Roth IRA (which I have to imagine is true), then there will be no taxes and no penalty.

When you go to withdraw from your Roth later, if those withdrawals happen before 59.5, then you'll have to account for that $20. But otherwise you won't need to worry about it, as withdrawals after 59.5 are tax and penalty free (as long as some very basic prerequisites about having a Roth for more than 5 years are met).

 

[RenoJay]

Excellent. Thanks everyone!

 

[RunningBum]

Fairmark is a great resource for these kind of questions. Start at https://fairmark.com/retirement/roth-accounts/roth-distributions/. You probably want to start with the overview and "tax free" sections, maybe others if tax free does not apply.