Roth Conversion, then possible withdrawal from another Roth
Does anyone know if the a withdrawal (pre 59 1/2) from a roth IRA in one contract is deemed to be a withdrawal from all Roths held by the taxpayer…..like regular IRAs?
The issue is that we converted a large sum in 2007 from an IRA at one trustee……now, this year, the clients wishes to withdraw his basis in a different Roth IRA and put that into his 529 plan. Client is 46. Kids will need the funds in 5 – 10 years.
Permalink Submitted by Alan Spross on Wed, 2008-01-16 22:59
All Roth IRA accounts are aggregated with respect to tax distribution ordering rules, therefore it makes no difference which particular Roth is used as the source of a distribution.
Client’s regular contributions are deemed first out, then conversions, and lastly earnings. His distribution would be tax and penalty free until he started to tap the conversion dollars. Once into the conversions, the 10% penalty would apply to conversions held less than 5 years. Contribution to a 529 would not qualify for an exception to the penalty.
I’m not sure 529 funding should come from a parent’s Roth IRA. Some 529 plans have high expenses and limited investment options. If the parent needs to take Roth distributions at the time, they are available penalty free under the higher education exception, although the earnings would still be taxable prior to age 59.5 if the distributions needed to get that deep into the Roth.