under 59.5 Roth Withdrawal
I have a client that is under 59.5 and wants to take a w/d from a Roth IRA. is the full amount of the withdrawal subject to a 10% IRS penalty or is it just on the gains. He already paid the tax on the conversion from an IRA to Roth.
Permalink Submitted by Alan - IRA critic on Wed, 2016-01-27 20:54
Roth ordering rules determine how much of each component are being distributed. First out are the balance of regular Roth contributions without tax or penalty. Then conversions held over 5 years are also tax and penalty free. More recent conversions not yet held 5 years are subject to the 10% penalty, but no tax. Finally, after all the regular and conversion contributions have been withdrawn, then earnings come out. Earnings are subject to both tax and penalty. As you can see, the client needs to know the composition of his Roth IRA to report the distribution correctly on Form 8606. If he has not been keeping track, it may take considerable effort and time to determine how to report the distribution.