Backdoor Roth distributions
Should be simple – client makes non-deductible contribution to TIRA. Has no other Trad IRA funds. Converts the 7k to Roth. Now, has 7k in Roth. Can he take the 7k out immediately without tax/penalty? Order of distributions says – Contributions first, no taxes, no penalty; next come taxable conversions – must be in for 5 years or 10% penalty; then comes non-taxable conversions – are these equivalent to contributions?; finally earnings comes out- subject to 5 years and 59 1/2. Thanks – m
Permalink Submitted by Alan - IRA critic on Mon, 2024-11-18 17:44
Yes, a Roth IRA Distribution of the 7k would be tax and penalty free. It would be reported on Form 8606, coming from conversions on line 24. Because the 7k is a non taxable conversion, there is no 5 year holding requirement as the penalty only applies to the taxable portion of any conversion. This assumes that all the Roth IRA holds is this non taxable conversion. If there are any gains on the 7k, the gain could not be tapped tax and penalty free until 59.5 and the Roth held 5 years.