ROTH IRA Distributions – Before 5 year waiting
I just read your article in the Orange County Register and you stated that distributions can be pulled out of a CONVERTED Roth IRA
before the 5 years on the FIFO accounting principles. How does my client keep track of the principle put in and the money earned on
the Converted IRA? Does he have to check off or state somewhere on his tax forms which money he is pulling out of his
CONVERTED Roth IRA.
Thank you for you help,
Mark Turner
Permalink Submitted by Alan Spross on Wed, 2010-01-13 20:56
The 8606 instructions detail how to handle this. But to get the proper amounts on each line of the Form the client needs to keep track of his regular contributions and conversion contributions by amount and year. The 8606 will request those balances. If client has been having taxes done by a professional using software, the needed detail may also have been entered into the program each year.
The client does not have to track earnings since earnings are simply the excess amount in the account over and above the contribution totals. Also, note that when the conversion amounts come out prior to 5 years, they are subject to penalty unless client is over 59.5 or meets a different penalty exception. As you stated the oldest conversions come out first, but those made prior to 2006 are now penalty free, having met the 5 year holding requirement.