Roth Conversion Withdrawal
/what really is the rule for a Roth conversion that is not 5 years old for withdrawals? I did a $50k conversion three years ago and want to take $10k of the account and the account has grown to $58,000. I thought I could take the $10k from my original principle and not the gains at this point. True or False?
Permalink Submitted by Alan Spross on Thu, 2012-11-08 23:38
Roth distributions follow ordering rules.
If your Roth IRA (any of them if you have more than one) has any regular contributions, those come out first without tax or penalty. Then conversions come out, the oldest first. If your conversion was not fully taxable, then the taxable amounts come out before the non taxable part of that conversion.
If this conversion is your ONLY Roth contribution of any type, the 10k must come from the conversion funds. This amount is NOT taxable, but is subject to a 10% early withdrawal penalty unless you meet a penalty exception. (Penalty would be $1,000).
The typical exception is reaching 59.5 before the conversion distribution, but there are other penalty exceptions, such as first home purchase, higher education costs, medical expenses over 7.5% of AGI, medical insurance if you collected UC for 12 weeks, and a few others. If you met one of these exceptions you would file a 5329 and claim the exception reason and avoid the 10% penalty.
Your Roth earnings come out LAST, ie not until you have taken out the 50k conversion money. So you will not be tapping any earnings.
You also need to report the Roth distribution on Form 8606.