Pre-59-1/2 Roth Distribution
Hello–
Several years ago, client rolled over his Traditional 401(k) into his Trad. IRA and in the process, he converted some of it to a Roth IRA (paid the taxes and moved on). He is now 51 years old. Now he would like to withdraw some of that Roth IRA. I know that in a contributory Roth IRA he can withdraw his contributions, pre-59-1/2, tax and penalty free (the account has been open for more than 5 years). Is he able to take penalty and tax-free withdrawals from this Roth IRA (that was converted from a Traditional 401(k))? And if so, how in the heck do we determine what was “contributions”?
Thanks in advance for any help and direction. Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2021-04-26 20:32
This is a very common problem. People do not keep track of their Roth regular contribution basis or conversion basis for years, then want to take a distribution that must be reported on Form 8606 to determine the amount, if any that is taxable or subject to penalty. It takes research to try to update the Roth contribution basis. If he kept Form 5498 issued to him for every year he made a regular or conversion contribution, that is the best source. If not, if the Roth has been at the same custodian for many years they might be able to provide a record of the date and amounts of contributions.
Under the Roth IRA ordering rules, all his regular contributions come out first, tax and penalty free. Then conversions, oldest first. If the conversion was done in 2016 or earlier, it is also available tax and penalty free. The conversion amount will have been reported on the tax return for the conversion year, so perhaps he has kept older returns. If he uses the same tax preparer every year, perhaps the preparer captured his Roth basis and the tax software has updated it annually. Last place to go if all else fails is an IRS transcript, but I guess these are only available back to 2011.