5-year Distribution Rule
I see that the 5-year rule is the first test for a qualified distribution. What if somebody contributed $5,000 to an IRA in 2010. They are not 59 1/2 and don’t meet any of the other qualifications so not looking to do a qualified distribution. Rather, they would like to make a non-qualified distribution that is a return or partial return of their $5,000 from 2010. Is it true that any amount up to $5,000 will not be subject to tax or penalty, even if it is inside of the 5-year hold?
Thank you
Permalink Submitted by Alan - IRA critic on Thu, 2013-05-30 15:45
Yes, no tax or penalty for any distributions up to the amount of your regular Roth IRA contributions.
Permalink Submitted by Patrick Rudy on Thu, 2013-05-30 16:04
Thank you Alan!I have always mis-understood that the 5-year rule applied to any sort of distribution from the Roth. In other words, I thought that if you take a distribution of a contribution within the past 5 years, it will be hit with the 10% penalty.
Permalink Submitted by Alan - IRA critic on Thu, 2013-05-30 17:23
That is true of a conversion contribution, but not a regular contribution. For a conversion held under 5 years, the pre tax portion of the conversion withdrawn under 5 years gets a 10% penalty unless you are 59.5. Conversions come out after any regular contributions. oldest conversions before later ones.