Romer
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My mistake. I mis named my 1099 from last year. It was my Roth conversion from the IRA. I didn't have a distribution last year. I called Schwab and the one I did this year was coded correctly.
My mistake. I mis named my 1099 from last year. It was my Roth conversion from the IRA. I didn't have a distribution last year. I called Schwab and the one I did this year was coded correctly.
Each roll-over you do restarts the 5 year rule. Your financial institution should have made that clear. From investopedia.com:
Beware of the 5-Year Rule
One potential trap to be aware of is the so-called "five-year rule." You can withdraw regular Roth IRA contributions tax- and penalty-free at any time or any age. Converted funds, on the other hand, must remain in your Roth IRA for at least five years. Failure to abide by this rule will trigger an unwelcome 10% early withdrawal penalty.
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The five-year period starts at the beginning of the calendar year that you did the conversion.
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So, for example, if you converted traditional IRA funds to a Roth IRA in November 2022, your five-year clock would start ticking on Jan. 1, 2022, and you'd be able to withdraw money without penalty anytime after Jan. 1, 2027.
Remember, this rule applies to each conversion, so if you do one in 2023 and another in 2024, the latter transfer will need to be held in the account for a year longer to avoid paying a penalty.
This is an area where we get many questions. There are two five-year rules that apply to Roth IRA distributions.
The first five-year rule applies to converted funds. If you are under 59 1/2, and you take a distribution of converted funds within five years of the conversion, a 10% penalty will apply. This five-year rule does not apply in your case because you are over age 65.
However, there is a second five-year rule that applies when there is a distribution of earnings, and that does apply to you. If your first Roth conversion or contribution was for 2020, you must wait until January 1, 2025 before you can access your earnings from your Roth IRA tax-free.
I don't have a Roth but have a basic question:
As I understand it, you cannot touch the earnings for 5 years. If your investments are in funds or whatever, how do they know you are withdrawing the principal and not the income? I'd think you're likely reinvesting your income back into the fund, so how do they differentiate?
Or is this a matter of withdrawing more than the initial deposit?
Apologies if I'm just out in the weeds here.
Ordering Rules for Distributions
If you receive a distribution from your Roth IRA that isn't a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed under What if You Contribute Too Much? in chapter 2 of Pub. 590-A). Order the distributions as follows.
Regular contributions.
Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion and rollover contributions into account as follows.
Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first.
Nontaxable portion.
Earnings on contributions.
Disregard rollover contributions from other Roth IRAs for this purpose.
I don't have a Roth but have a basic question:
As I understand it, you cannot touch the earnings for 5 years. If your investments are in funds or whatever, how do they know you are withdrawing the principal and not the income? I'd think you're likely reinvesting your income back into the fund, so how do they differentiate?
Or is this a matter of withdrawing more than the initial deposit?
Apologies if I'm just out in the weeds here.
This cleared up for me, hope it helps you.I ran across a good discussion yesterday from Ed Slott yesterday. While I thought I understood the 5 year rule, he says it is actually 2 clocks. This cleared it up for me.
https://www.irahelp.com/slottreport/...ve-year-clocks
Says there are 2 clocks, first is to determine if you pay a 10% penalty for early withdraw. Since you are past the 59.5 your clear on this one.
Second click is to determine if you pay taxes on the withdraw. Since you have had a Roth IRA for over 5 years, any Roth, it would not be subject to taxes.
Your brokerage company (or bank) will give a 1099 to you each year and on there will show the basis. (the amount you put in) and that is how the IRS can tell if you took out over that.......if so then the penalty is computed.
Your brokerage company (or bank) will give a 1099 to you each year and on there will show the basis. (the amount you put in) and that is how the IRS can tell if you took out over that.......if so then the penalty is computed.
Perhaps code J, based on Instructions for Form 1099-R.Does anyone know what the 1099-R distribution code should be or any other tax forms from Vanguard related to this Roth IRA distribution should show?
In 2024, I expect to withdraw $6,000 from my Roth IRA to pay expenses.
I will be age 53 and my Roth IRA was opened (and still is) with Vanguard in 2004. I contributed the maximum amounts allowed each year during the years from 2004 to 2012.
My question is about doing taxes for this expected distribution in Tax Year 2024 when I get tax forms from Vanguard in January 2025.
I meet the requirement of the 5-year rule since opening the Roth IRA, but not the over 59 1/2 years old rule.
So it's an early distribution but I'm withdrawing an amount that's meant to come from my past contributions (not earnings) since I have not taken any prior withdrawals from this account.
Does anyone know what the 1099-R distribution code should be or any other tax forms from Vanguard related to this Roth IRA distribution should show?
Thank you!
-just_hatched
I suppose that
1. It's good that I had a record of my contributions (I don't know if that has completely been up to me or if Vanguard and the IRS have also been keeping track) and
2. It seems that I should keep track of the "basis in Roth contributions" going forward for any other potential distributions I take prior to age 59 1/2 as the basis will go down each time I take a distribution.
It's also possible for your basis to go up, for example if you have Roth conversions that reach the five year mark.
1. Vanguard will try to help you, but at the end of the day it's your responsibility. The Form 5498s that you received when you made those contributions say to save them as tax records, but most people don't understand why and therefore do not save them. I'm glad you were able to reconstruct your contributions.
Did you open any Roth IRA at least five years ago? If so, all distributions from any Roth IRA will be "qualified" and thus tax- and penalty-free.I’m well past 59-1/2....
If this is your first Roth IRA, the sequence of withdrawals is contributions & rollovers first, then when that bucket is empty you begin withdrawing from conversion amounts (oldest year to most recent year) until that bucket is empty, before you get to the Roth IRA earnings bucket. Being over 59.5 only the earnings bucket withdrawals will be taxed if the first Roth IRA is less than 5-tax years old. No penalties after 59.5, all conversion clocks became satisfied at 59.5 even if thess than 5-yrs has passed.I have an unusual situation that I’m having trouble applying the 5-year rules to. I recently rolled my 401K over to an IRA, but it contained a small amount of after-tax contributions (from a time before 401Ks were born..) that rolled to a newly created Roth account. I’m well past 59-1/2, so that part is covered, but although the account is technically new, it was funded by money committed in 1980. I believe I can access that money now, but what if I add to it with conversions? Will that “converted” money be tied up with penalties until the account is 5 years old? My Schwab contact says no, but it seems there are differences of opinion….