ROTH IRA Withdrawal
Is this correct?
ROTH IRA Withdrawals (we understand the below, is it correct):
Pre 59 ½:
– First out, Contributions; no income tax/ no penalty
– Second out, Conversion dollars; more than 5 yrs ago, no income/ no penalty; less than 5 yrs, no income tax, but a 10% penalty
– Last out, Positive earnings; under 59 ½, pay income tax & 10% penalty
– after 59 1/2 no tax / no penalty
Thank you,
Ed Farmer
Permalink Submitted by Anonymous (not verified) on Thu, 2010-07-29 20:46
[quote=”ebf”]- after 59 1/2 no tax / no penalty[/quote]
If the account owner had any Roth for 5 years (example: opened one in 2000 and never contributed again) the earnings are tax free – I agree.
BUT, if the IRA owner just started a Roth within the last 5 years, earnings would be taxed if everything else is depleted – contributions, conversions, subsequent conversions, EARNINGS.
pko
Permalink Submitted by Edward Czapor on Fri, 2010-07-30 02:40
In addition, converted amounts are withdrawn on a FIFO basis. The 10% penalty if applicable would apply only to amounts taxable at conversion, and not to any converted basis. Taxable amounts are withdrawn first followed by the nontaxable portion of each conversion. If 59 1/2 or more there is never a 10% penalty even if holding period is less than 5 years for conversions or regular contributions.
Ed C.