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Roth IRA withdrawals
Old 01-25-2020, 09:36 PM   #1
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Roth IRA withdrawals

Hi,
I plan to withdraw all contributions I have made into my Roth IRA. I am not yet 59 1/2 but I have read that as long as the account has been open for at least 5 years there are no penalties or taxes.
On the other hand I have also read that contributions can only be withdrawn 5 years after the contribution was made.

I just want to be 100% sure before I make the withdraw because some of my contributions were from last year and the year before.
The IRA account was opened 15 years ago.

Thanks!
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Old 01-25-2020, 09:41 PM   #2
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Original Contributions can be withdrawn at any time. There is no 5 yr rule for
contributions.

Conversions and earnings are another story.
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Old 01-25-2020, 09:49 PM   #3
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more general rules about Roth withdrawals from a table by kawill of the fairmark.com site. The ordering rules say that the first withdrawals are contributions, then conversions (oldest first and within each conversion the taxable part first, then the non-taxable part) and then finally earnings........
the same way the table is ordered. You can see that in all situations, the contributions are tax and penalty free when withdrawn.

Re: Roth IRA Rules - Table Approach
Posted by: KAWill (IP Logged)
Date: October 14, 2010 11:57PM


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
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Old 01-25-2020, 10:30 PM   #4
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Okay, thanks!

I kept finding contradictory info online that made it difficult to know for sure.
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Old 01-25-2020, 10:41 PM   #5
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if you have links to articles that say otherwise, it might be interesting to post them here.
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Old 01-25-2020, 11:48 PM   #6
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Well I'm going to say it: Normally that is a REALLY BAD IDEA for someone so young.

There might be other much BETTER things you could do instead, but you have to describe what you want to do.

Why not describe what you are trying to solve, and there may be a way to do that without trashing a valuable ROTH account.
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Old 01-26-2020, 12:38 AM   #7
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I have accumulated about $2,000,000 in savings but it is all tied up in retirement accounts. $730k in a 401k and IRA and $1,270,000 in Roth IRAs.
I am going to withdraw my Roth contributions ($97,000) so I can start investing and growing money in a non retirement account for easier access.

Let me know if you have any better ideas.
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Old 01-26-2020, 01:46 AM   #8
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Quote:
Originally Posted by Cybertruck View Post
I have accumulated about $2,000,000 in savings but it is all tied up in retirement accounts. $730k in a 401k and IRA and $1,270,000 in Roth IRAs.
I am going to withdraw my Roth contributions ($97,000) so I can start investing and growing money in a non retirement account for easier access.

Let me know if you have any better ideas.
Leave the money in the Roth so it grows tax free?

You can always withdraw contributions later if you need cash to spend, but withdrawing from Roth to invest taxably doesn't make sense at first glance.
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Old 01-26-2020, 03:12 AM   #9
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$97k turned into $1.3 mill? Congrats. I think you know what you are doing
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Old 01-26-2020, 06:07 AM   #10
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How far away from 59.5 y.o. are you and when do you anticipate needing the funds for anything specific? The chart shows that you can withdraw contributions anytime. It also shows that when you are 59.5 y.o. and the first Roth is 5 y.o. (the latter already met), then everything......contributions and earnings are available w/o restriction.

Sunset and SevenUp have a very good point.....Roth grows and is available for withdrawal tax and penalty-free under the conditions described. Taxable account is subject to taxes while growing (dividends/CGs) and also at withdrawal so Roth is superior if it works for you.
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Old 01-26-2020, 07:14 AM   #11
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I wouldn't touch the 97K, but keep working to build-up 97K in savings. Retirement savings is a marathon, not a sprint.
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Old 01-26-2020, 07:20 AM   #12
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Quote:
Originally Posted by Cybertruck View Post
I have accumulated about $2,000,000 in savings but it is all tied up in retirement accounts. $730k in a 401k and IRA and $1,270,000 in Roth IRAs.
I am going to withdraw my Roth contributions ($97,000) so I can start investing and growing money in a non retirement account for easier access.

Let me know if you have any better ideas.
How hard is it to access the Roth $$? Can you plan ahead so that you get
annual (or monthly) payouts from Roth to put into non-retirement acct for easier access?
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Old 01-26-2020, 08:51 AM   #13
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Quote:
Originally Posted by kaneohe View Post
How far away from 59.5 y.o. are you and when do you anticipate needing the funds for anything specific?....
OP is 41.

I think what he wants to do maes sense. He has $2m accumulated and wants to semi-retire soon... it is just a matter of penalty-free access to his money, most of which is tied up in tax-advantaged accounts.

He seems to be leaning to doing a 72(t) on $730k of tIRA money but that won't provide all that he needs.
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Old 01-26-2020, 10:01 AM   #14
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I know it sounds crazy to withdraw from the Roth but I will try to explain my situation in greater detail so you can understand my predicament.

I am 41 years old. I make around $100k/year. I own & operate a house painting company. My body is no longer able to do what it once was. I knew this time would come so I saved every year and invested the money so I could replace my business income at some point.

The problem is 100% of my savings are in retirement accounts. I have $2 million and 18 years until retirement age to invest it so Iím not worried about having enough money at that point.

What Iím worried about is having enough money until that point to meet my needs. I need money now to start preparing for whatís to come. I have 2 herniated discs in my lower back, and I have spinal stenosis and degenerative disc disease in my neck. I canít do my job forever.

My goal is to get $200k in a taxable account now. I can invest it and grow the balance so I can start using the earned interest to supplement my income. I know i will have to pay long term capitol gains taxes but at least it will only be taxed at 15%.

-Iíve also looked into taking SEPPs with a 72(t) plan. This idea is sounding less and less appealing to me after reading about the penalties if the plan is busted. I could potentially pay 18 years of back penalties and interest on all the money I withdrew. The penalties could get astronomical if one mistake was made that busted the plan.

-Iíve looked into doing a Roth conversion ladder. Roth earnings are untouchable without penalties AND taxes until 59 1/2. But if I convert TIRA money to my Roth it is considered a contribution. This idea is pretty flexible but all conversion taxes are paid upfront and withdrawals cannot be taken for 5 years.

-Iíve thought about doing a mortgage loan so I could use the money to invest. Wife says no!

-401k loan; maybe.

-Withdraw from TIRA. 10% penalty tax and income tax.
I know this one sounds bad, but maybe itís better than pulling contributions out of the Roth. What do you think?

Believe me, the last place I want to take money from is my Roth IRA, but it is the easiest way to get to my retirement money with 0 taxes/penalties. My contributions are only 7% of my balance. Just checked my balance and itís $1.4 million.
$1.3 million will stay in the Roth for the next 18 years to grow; and with as well as Iíve done investing it to this point I would expect it to be well over 5 million when Iím 59.

FYI, I do have an appointment to discuss this with a retirement specialist before I actually put any of these ideas into motion.
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Old 01-26-2020, 10:15 AM   #15
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In addition to asking us "experts" you should go to the source for information (IRS Publication 590-B.)
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Old 01-26-2020, 11:31 AM   #16
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All I can say is congratulations on a job well done. Looks like you have thought this out well.

Most of the time when folks come on here and say they are going to cash out their ROTH it's a major mistake.
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Old 01-26-2020, 11:58 AM   #17
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I think there are 2 questions here... first is do you have enough? I suspect there are things that we don't know about because $2m would not fund $100k a year of spending for 40-50 years.... but I suspect that with SS and other resouces that you have comcluded that you have enough... the question is just getting penalty free access since most of the money is subject to penalty for the next 18 years.

Also, as I recall you will just be slowing down initially so initially your withdrawls will bw lower and then higher later.

Since you can withdraw Roth contributions without penalty at I would just leave the money to grow in the Roth rather than withdraw and invest in taxable account... it is the same thing at the end of the day... assuming it is invested in the same thing if it is in the taxable account or the Roth... except the growth in the Roth until you need the money for spending is tax free which gives you more headroom for Roth conversions. Also, once you slow down your business, start doing Roth conversions asap to create a ladder of funds available starting in 5 years.

But even to withdraw $50k a year for the first 5 years is going to be problematic because you don't have $250k that is accessible without penalty since your Roth contributions are only $100k.

I don't see a good answer other than a mortgage to liquify your home equity until you gain penalty free access to funds.

Another outside-the-box option is to think about what to do with your house painting company? Is there someone younger that you know... or a former employee or even a young competitor.... that might be interested in joining you and over a number of years you would transition the business to them as your interest in and capacity for physical labor declines? It could be a win-win... the partner gets the benefit of your experience and what you can do physically during the transition and less risk than trying to build a business by themselves.
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Old 01-26-2020, 02:21 PM   #18
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I will most likely continue running my business for the next 5+ years in a shrinking capacity.
I would like $20-$30k in withdraws per year now just to take some financial pressure off of my shoulders but I donít know if I can make that happen.
A lot of that $20-$30k would probably just end up going into my taxable account to increase my investment principal, but it will at least be accessible if itís needed.

In 6 years both of my children will be in college. I will need money for college expenses, which I might be able to withdraw penalty free from my TIRA.
At that point I will not be as anchored down and may want to sell the business and travel more.

My wife is older than me and $175k of our Roth balance is in her account, so we only have about 13 years before we can access that.

Timeframe:
Years 1-5 - Build taxable account balance.
Years 6-13 -Draw investment income from taxable account.
Years 13-18 - Draw income from wifeís Roth IRA
Years 18+ - Full access to all retirement accounts

I am looking at this situation as an aggressive investor.
I have 5 years to build a pile of cash that I can earn interest income from and access before retirement.

If I can get $200k in the account now, and assuming I continue making 35% returns, which is what Iíve made for the past 5-10 years, I could have $900k in 5 years.

Letís say I only make 20% returns. In 5 years I would still have $500k. I could then start withdrawing $100k worth of interest income/year without depleting the principle. This income would need to last for at least 7 years until my wifeís Roth becomes available.

If I start converting TIRA funds to my Roth account this year, I will also be able to start withdrawing the Roth conversions in 5 years.

I also might be able to sell the business for $100-$200k if Iím ready to quit entirely.

Thank you for hashing this out with me!!
It has really helped me organize my thoughts.
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Old 01-26-2020, 02:30 PM   #19
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.... Letís say I only make 20% returns. ...
I think it would be foolish to count on 20% returns.
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Old 01-26-2020, 02:34 PM   #20
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The $100k of Roth contributions would support $20k/year withdrawals for the next 5 years which gets you a good ways towards your goal of $20-30k. In addition, if you do a Roth conversion in 2020 then you could withdraw it penalty free in 2025 so you could ladder Roth conversions for much of the rest. You'll just have to very carefully track and document that your Roth withdrawals are either contributions of 5 yo conversions until you are 59 1/2.
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