Roth Withdrawal Question
A client has had a Roth account with us since 2010 and is wanting to withdraw some of his contributions. How does the five year rule work? Would the five year period be from the day he first started his account or would it be he can only withdraw money that was put in five years before 2019? Would there be any penalty or taxation?
Permalink Submitted by Alan - IRA critic on Fri, 2019-03-08 19:46
The client needs to know the composition of his Roth IRA, all of them in total if he has more than one. His total balance of regular Roth contributions come out first without tax or penalty regardless of when he made them. Next out are any conversions, the oldest ones first. Conversions over 5 years old also come out without tax or penalty. Conversions under 5 years are tax free, but subject to the 10% penalty unless he qualifies for a penalty exception. Earnings come out last and subject to both tax and penalty. Once he reaches 59.5 his Roth is qualified and the entire balance becomes tax and penalty free regardless of when conversions were done.