iloveyoga
Thinks s/he gets paid by the post
The situation is - someone who is 50, Roth contributions are more than 5 years old, and a WD of just the contributions was made. Do any penalties apply in this situation? Thank you.
Roth WD ?
- Thread starter iloveyoga
- Start date
You will be fine. You can w/d your original Roth contributions any time w/o tax or penalty...........so 2 of your 3 factors are irrelevant. It is a common myth that the Roth must be 5 yrs old...............yes for certain things but not for withdrawing original contributions. If you are talking about conversions (which some confusingly call conversion contributions), that's a different subject.
You will receive a 1099-R reporting the distribution. You need to report it
on the 1040 and on F8606 which will demonstrate that there is no tax or penalty. This exercise will demonstrate that you should keep a record of your contributions/conversions/recharacterizations/withdrawals/
etc. The 5498s have a lot of that info so save in one folder.
**********************************************************
I like this table by kawill from the fairmark.com site:
(almost no thinking required!); for clarification........conversions are withdrawn (after contributions)
in chronological order starting w/ the earliest. Within each conversion, there may be 2 parts...the taxable
part and the non-taxable part (if there was basis.....non-deductible contributions). Within each conversion,
the taxable part is withdrawn first, then the non-taxable part.
Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 12, 2018 06:27PM
......................
Roth IRA Distribution Table
UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET
Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-Yes (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes
UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET
Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes
OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA
Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-No
OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA
All Distributions Are Qualified
No Taxes
No Penalties
The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.
This table is not applicable to timely distributions of excess contributions, return of regular contributions, or the Roth IRA Exceptions listed in IRS Publication 590-B.
You will receive a 1099-R reporting the distribution. You need to report it
on the 1040 and on F8606 which will demonstrate that there is no tax or penalty. This exercise will demonstrate that you should keep a record of your contributions/conversions/recharacterizations/withdrawals/
etc. The 5498s have a lot of that info so save in one folder.
**********************************************************
I like this table by kawill from the fairmark.com site:
(almost no thinking required!); for clarification........conversions are withdrawn (after contributions)
in chronological order starting w/ the earliest. Within each conversion, there may be 2 parts...the taxable
part and the non-taxable part (if there was basis.....non-deductible contributions). Within each conversion,
the taxable part is withdrawn first, then the non-taxable part.
Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 12, 2018 06:27PM
......................
Roth IRA Distribution Table
UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET
Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-Yes (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes
UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET
Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes
OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA
Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-No
OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA
All Distributions Are Qualified
No Taxes
No Penalties
The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.
This table is not applicable to timely distributions of excess contributions, return of regular contributions, or the Roth IRA Exceptions listed in IRS Publication 590-B.
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OP
iloveyoga
Thinks s/he gets paid by the post
Thank you so much. That's what I thought, and then I started to second guess myself when going through the tax software.
OP
OP
iloveyoga
Thinks s/he gets paid by the post
"You will be fine. You can w/d your original Roth contributions any time w/o tax or penalty...........so 2 of your 3 factors are irrelevant. It is a common myth that the Roth must be 5 yrs old...............yes for certain things but not for withdrawing original contributions."
I did a bit more research....it also looks like I can take out the contributions that are more than 5 years old and make a tax deductible contribution to my traditional IRA for 2018. It's at Vanguard, so it looks like I would need to withdraw the money to my checking account and then make a contribution from there. This fits in with my overall goals and would help with taxes this year. Make sense? Thanks!
I did a bit more research....it also looks like I can take out the contributions that are more than 5 years old and make a tax deductible contribution to my traditional IRA for 2018. It's at Vanguard, so it looks like I would need to withdraw the money to my checking account and then make a contribution from there. This fits in with my overall goals and would help with taxes this year. Make sense? Thanks!
there you go again! propagating that 5 yr myth on original contributions
Yes , it is true that you can take out >5 y.o. Roth contributions w/ no tax or penalty. It is also true that you can take our <5 y.o. Roth contributions w/ the same non-effect.
You would be better off leaving the Roth alone (if you could afford it) and do the TIRA if there is a benefit. If there are no funds, the usual rule applies.........are you better off taking the deduction now at whatever marginal tax rate you have and then paying taxes when you withdraw later. If not, then you should do a Roth instead and then might as well leave it there to begin with.
