ROTH IRA EARLY WITHDRAWAL
I am over 70 1/2 years of age and have taken possession a stock certificate which I purchased over 5 years ago with ROTH IRA funds. I had to take possession of the certificate and have not placed it into another trustee agency or living trust. The stock has ZERO market value. I have read that there is no penalty for this early withdrawal (worthless or not). Is this correct? What will be the tax consequences if by some chance the stock becomes NOT worthless and is eventually sold? Is it still a classified as a ROTH which means that the gain/loss is not taxable?
Permalink Submitted by Alan - IRA critic on Fri, 2017-03-24 15:45
If your first Roth IRA contribution of any kind was prior to 2013, then your Roth IRA fully qualified and any distributions are tax and penalty free. And even if the Roth is not yet qualified, any distribution up to your balance of regular Roth contributions is tax and penalty free. There is never a penalty after age 59.5. Once this certificate has been distributed out of your Roth IRA, you will get a 1099R with the custodian’s estimate of the value on it and you must report that on your return on lines 15a and 15b. You also need a Form 8606 if your Roth is not yet qualified. If you do not roll this certificate back into your Roth IRA within 60 days, your cost basis for the stock will be it’s value at the date of distribution as reflected on the 1099R. Any gains after that will be taxed as either ST or LT gains and taxable upon sale on Sch D. The stock is no longer associated with your Roth IRA once you took a distribution of that stock.
Permalink Submitted by Ben Meyer on Sat, 2017-03-25 04:22
From what was posted the ownership of the stock seems unclear. If the name as shown on the stock certificate is of the form “Your-name”, with nothing further other than your address, and no restrictive wording describing ownership by an IRA, then it is probably true that the stock was distributed from the IRA as of the issuance date shown on the certificate. Rollover back into your Roth IRA would need to be within 60 days of that date. On the other hand, if the name on the certificate is of the form “XXX, Custodian under IRA, FBO Your-name”, the stock would still be within the IRA regardless of its current value. But in this case there may be implications due to you being in posession of the certificate instead of the custodian.