Withdrawals from Roth during first five years?
Need clarification. My understanding is that all conversion principal can be withdrawn tax free even during the five year waiting period. Only the interest earned if removed would be taxed. If this is the case, does it matter how the pricipal is withdrawn. Could it be an income stream or a simple lump sum distribution and still remain tax free as long as it does not exceed the original conversion principal? Thanks very much!
Permalink Submitted by Clyde Wolf on Wed, 2009-03-11 20:40
Bditton,
You are right, during the 5 year conversion clock, the converted money can be distributed tax free from your ROTH IRA. The taxes were paid at the time of conversion. It does not matter if you take the money all at once or as you describe in an income stream.
HOWEVER, during that 5 year convesion clock, distributions maybe subject to the 10% penalty unless the IRA owner is age 59.5 or older, or one of the many exceptions described on page 53 of IRS Pub 590 apply.