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Old 04-11-2008, 07:34 AM   #21
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Quote:
Originally Posted by teejayevans View Post
I reread pub 590 again, yea they don't say one or another, I wouldn't
assume one way or another and would like to see it explicitly stated.
Also I like to know if the that applies to conversions as well as
contributions.
TJ
TJ, I agree w/ you that it isn't explicitly stated in Pub 590 or Pub 17.
Perhaps this might make you feel more comfortable.
Fairmark Forum :: Retirement Savings and Benefits :: Withdrawal of contributions from Roth IRA

My interpretation is that "original" contributions are not subject to the 5 yr rule and can be withdrawn anytime w/o penalty but conversion contributions are subject to the 5 yr rule and penalties. What do you think?
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Old 04-11-2008, 10:38 AM   #22
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Quote:
Originally Posted by kaneohe View Post
TJ, I agree w/ you that it isn't explicitly stated in Pub 590 or Pub 17.
Perhaps this might make you feel more comfortable.
Fairmark Forum :: Retirement Savings and Benefits :: Withdrawal of contributions from Roth IRA

My interpretation is that "original" contributions are not subject to the 5 yr rule and can be withdrawn anytime w/o penalty but conversion contributions are subject to the 5 yr rule and penalties. What do you think?
I think this would be a great question to feed to one the popular
financial planner radio shows (Ray Lucia, Ric Edelman). Since I don't
plan on doing before 5 years anyway, it's a mute point for me, but if
I did I would want to get an answer from a better source.
TJ
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Old 04-11-2008, 03:10 PM   #23
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Quote:
Originally Posted by teejayevans View Post
I reread pub 590 again, yea they don't say one or another, I wouldn't
assume one way or another and would like to see it explicitly stated.
Also I like to know if the that applies to conversions as well as
contributions.
TJ
Publication 590 is explicit:

"You do not include in your gross income ...distributions that are a return of your regular contributions from (sic) your Roth IRA(s)."

and

"Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions." (emphasis added)

This makes sense, since regular contributions are per se with after-tax money and there is no "taxable part" to apply the 10% penalty to.

Conversion contributions are different--each conversion contribution must meet its own five-year test or the "taxable part" is subject to the 10% penalty, unless it meets one of the 10 exceptions that apply to both Roth and traditional IRAs ("1st time home buyer" etc).

Again, this makes sense. The Roth conversion is itself one of the exceptions to the 10% penalty for the early distribution of a traditional IRAs (i.e. the conversion is treated as a rollover--code G in box 7 of Form 1099R). However, if you do not meet the safe harbor of the five-year test for that specific conversion contribution, then the 10% penalty applies to the "taxable part." Once again, this make sense. When you convert a traditional IRA to a Roth, there could be both a non-taxable part and a taxable part (you pay the taxes but not the penalty on this part when you make the conversion.) The non-taxable part would be the after-tax contributions to the traditional IRA as reported on Form 8606 and the taxable part would be any pre-tax contributions and all earnings. You can't avoid the 10% penalty on pre-59 1/2 distributions on the taxable part simply by "washing" it through a Roth (unless you meet the Roth's 5-year test.) The non-taxable part is the same as a regular Roth contribution,i.e. both are made with after-tax funds and neither are ever subject to tax or penalty.

Hope this helps. (Huckabee was right--we have to simplify this quagmire.)
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Old 04-11-2008, 03:12 PM   #24
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Old 04-12-2008, 08:38 AM   #25
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Anybody-----good explanation w/ emphasis on bolding the key word.

Another independent answer citing same references as you. Thanks.
Ed Slott's IRA Forum :: View topic - Withdrawal of Contributions from Roth IRA
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