New Client is 55 yrs old and has a Roth IRA (Roth account is over the 5yr mark) with Spirit of American fund which produces a dividend.
She has been receiving this dividend for the past several years since she wanted it and not have it reinvested.
a. can you take a dividend out as income on a Roth IRA prior to age 59 1/2?
or
b. is this not allowed since she is only 55 and would incure a 10% penalty?
Thank you,
Douglas
To clarify what Alan_iracritic said, the remaining basis in Roth IRA contributions can be *determined* from the last Form 8606, assuming that it was correctly prepared, but the remaining basis after taking into account the current-year distribution is not actually shown anywhere on that form. To determine the presently remaining basis, subtract line 21 from line 22. Similarly, if any Roth conversion basis applied to the nonqualified distribution, determine the presently remaining basis in Roth conversions by subtracting line 23 from line 24.
Permalink Submitted by Alan - IRA critic on Sun, 2019-08-18 00:15
Since client is not yet 59.5, all Roth distributions must be reported on Form 8606 using the Roth ordering rules. The regular contribution balance comes out first tax and penalty free. Client must have been reporting these in prior years, or the IRS would have sent her a tax bill in the amount of the 1099R. The last 8606 should show her remaining balance of regular contributions. Once all regular contributions have been distributed, any conversions come out next, oldest first. Conversions done within the last 5 years will incur the 10% penalty. Earnings come out last subject to tax and penalty. Hopefully, she has the info to have filed the 8606 properly in the past and can simply follow suit for this year.