Backdoor Roth
Client is 56. Making Traditional IRA contribution (non deductible) and will immediately convert to Roth IRA.
Can client withdrawal Roth assets (his contributions) without penalty? He is asking about the flexibility of the Roth. Typically, you can withdrawal contributions tax and penalty free – only CONTRIBUTIONS. However, is the rule different on the converted amount – from the backdoor strategy?
Permalink Submitted by Alan - IRA critic on Wed, 2021-05-12 20:53
After all regular Roth contributions have been withdrawn, conversions come out next, oldest first. If the distribution is large enough to get to this year’s back door conversions, the 5 year conversion holding period would apply with respect to the penalty, but ONLY the taxable amount of a conversion is subject to the penalty. If there is no taxable portion of the conversion, there is no penalty for immediately withdrawing the converted amount. Again, if client had done a taxable conversion in a prior year, that older conversion would come out first and it would be subject to the 10% penalty if distributed in the first 5 years.