60 day withdrawal from Roth IRA

Submitted by Thomas Ferry on Thu, 2018-11-29 23:09

51yr old client converted her TIRA to a Roth IRA in 2014 (approx. value $35k)

Made two contributions (as back door conversions) since then, $5500 deposit each for 2016 and 2017

Roth IRA value today is $60k

What amount, if any, can she withdraw and then put back within 60 days and not incur taxes/penalties?

Permalink Submitted by Alan - IRA critic on Thu, 2018-11-29 23:31

As long as she completes a 60 day rollover, the entire account can be withdrawn without any tax or penalty. This assumes client has not done another such rollover in the last 12 months or would not be eligible to roll any amount back.
You may also be wondering what the taxable amount would be if nothing was rolled back. The 35k conversion would come out first, and would not be taxable, but would be subject to the 10% penalty since the 5 year conversion holding period is not complete until 1/1/2019. If client waited until January to take the distribution, the conversion 5 year holding period would be complete and no penalty would apply. The 11,000 back door conversions would come out second, subject to neither tax or penalty since those conversions were non taxable. Earnings of about 14,000 would come out last and be subject to both tax and penalty.
If the entire balance was withdrawn and only 14,000 was rolled back, the 14,000 would be rolled back first because it is the taxable amount. That would leave 46,000 distributed which was not taxable.
Again, if any amount distributed is rolled back within 60 days there will be no tax or penalty. But the distribution and rollover would have to reported on line 4 of new Form 1040.