Funds accessible after a Roth conversion?
I believe the rules concerning Roth distributions (i.e. 5-yr, age 59.5) refer only to earnings, not contributions. If so, contributions to a Roth IRA can always be withdrawn out of the Roth without penalties or taxes, regardless of how old the account owner is or when the Roth was set up. How does it work with Roth conversions then? Is there any degree of accessibility of those (already-taxed) funds that were converted to Roth IRAs? In other words, if the owner converts a TIRA containing $100k and half of that amount came from after-tax contributions and the other half is earnings, would the account owner be able to withdraw half of the newly-converted Roth without regard to the 5-yr, age 59.5 rule? Maybe there is a pro-rate rule to consider?
Permalink Submitted by Alan Spross on Tue, 2009-12-08 21:28
The ordering rules on p 69 of Pub 590 apply to this situation. They state that first regular contributions are withdrawn, next come the pre tax portion of a conversion followed by the after tax portion and lastly earnings. There is no pro rating done under these rules.
Therefore, the first 50,000 of this conversion withdrawn would be the pre tax portion and would incur a 10% early withdrawal penalty if the conversion had not been held 5 years or IRA owner was not over 59.5. The other 50,000 could come out second, tax and penalty free even before the 5 year holding period was met.