Withdraw Contributions without penelty

Submitted by Bill Ross on Thu, 2016-09-15 19:14

I’m just double checking that I can do this without penalty. I opened a Roth IRA 3 years ago and I would like to withdraw a portion of my contributions. I will not be withdrawing any earnings. Will I pay a penalty for this withdraw of my contributions? The 5 year rule is what I’m confused about, but I believe that only comes into play when you are withdrawing “earnings”.
Thanks



Submitted by Alan - IRA critic on Thu, 2016-09-15 20:41

You can withdraw your regular contributions anytime without tax or penalty, and they come out before any conversions or earnings. But if your “contribution” was a conversion, then you must wait until the 6th year to withdraw any of the conversion dollars without a 10% penalty. Either way, remember to keep track of the status of your Roth balance of regular and conversion contributions and which year you did the conversions. This will allow you to know the tax impact before you take the distribution, and you also need these totals to report your distributions on Form 8606.

Submitted by Bill Ross on Thu, 2016-09-15 20:55

Thank you for your reply. I have a dumb question though. When you say Conversion do you mean rolling over into an IRA or something like that? Just to clarify, I opened the IRA and have been making regualr contributiuons to it and have never rolled or converted a 401K or anything else into it. I just want to make sure I understand what a conversion is. Thanks again

Submitted by Alan - IRA critic on Thu, 2016-09-15 21:11

  • Basically, a conversion would be moving money from your 401k or traditional IRA to your Roth IRA. You would generally be taxed on a conversion. There are no dollar limits for a conversion, whereas your regular Roth contributions are limited to 5500 unless you are age 50+. Sure sounds like your Roth holds only regular contributions so you could add them up to determine the amount you could withdraw without any tax or penalty.
  • Your earnings in the Roth IRA is the value of the Roth less your total contributions. The earnings are subject to both tax and penalty until you reach 59.5 AND 5 years has passed since your first Roth contribution. You will have the 5 years in another two years, but you also must be 59.5 to withdraw any earnings without tax and penalty. Again, earnings come out last so if your Roth is worth 12,000 and your contributions total 11,000, the first 11,000 you take out will be your contributions.

Submitted by Bill Ross on Fri, 2016-09-16 14:39

Thank you so much for taking the time to answer my questions. One more question, the “5” year does not matter or come into play at all if I am only withdrawing a portion of my contributions correct?Thanks again

Submitted by Alan - IRA critic on Fri, 2016-09-16 17:20

That is correct for regular contributions.

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