ROTH DISTRIBUTION
I am 32 years old and want to take money out of my ROTH IRA. The account was established 20 years ago.
1) I have made contributions which I believe I can withdraw penalty free at any time (not earnings).
2) I have also converted Traditional IRA’s and want to take some of those funds also. What are the limitations and penalties?
3) I just rolled over a ROTH 401K balance to my ROTH IRA. Same question, I want to take some of those funds also. What are the limitations and penalties?
Basically, I am trying to gets funds out and want to do so with the least amount of taxes and penalties due, while following all of the rules.
Thanks for your help!
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-22 17:42
Yes, regular contributions can be withdrawn tax and penalty free anytime, with no waiting period.
Conversions come out only after all your regular contributions have been distributed. They come out tax free, but are subject to the 10% penalty on the taxable portion of any conversion that has not been held for 5 years (unless you qualify for a penalty exception). Therefore, come 1/1/2022, any conversions done prior to 2018 come out both tax and penalty free.
Rolling a Roth 401k into your Roth IRA means that you must update your accounting for your Roth IRA basis. Your contributions to the Roth 401k will be treated as regular Roth IRA contributions once in your Roth IRA, and any gains will be treated as Roth IRA gains. If you did any IRRs (in plan Roth rollovers) in your Roth 401k, tracking is more complex. Please advise if you did IRRs, or if the Roth 401k was only a partial rollover.
Permalink Submitted by Andrew Cope on Mon, 2021-11-22 17:58
How is a backdoor IRA converted to a ROTH due to income limitation treated for distribution.
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-22 18:21
Most backdoor Roth conversions are non taxable and therefore there is no 10% penalty for distribution from the Roth IRA. However, assume you made a 6000 non deductible contribution to TIRA, and this was your only non Roth IRA balance, and it gained $50 before the conversion. You would then have a 6,050 conversion to your Roth. If under the Roth IRA distribution ordering rules, you withdrew from that conversion, the first dollars out would be from the taxable portion ($50), and would be subject to the 10% penalty ($5). The non taxable portion of the conversion would come out next and be entirely tax and penalty free. Therefore, for the usual back door Roth conversion, when distributed from the Roth IRA, there would be no tax due and perhaps only a very small penalty. Of course, you must keep track of your Roth IRA basis including the taxable/non taxable portions of each conversion under 5 years.
Permalink Submitted by Andrew Cope on Mon, 2021-11-22 19:46
In 2008, rolled $36,093 from a T 401K to a ROTH IRA, taxes paid.This included EE=$32,257, ER=$4,020.47 and earnings of -$184.43.Can I take a distribution of all $36,093 without taxes or 10% penalty. Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-22 21:20
You had a 36k 401k balance at age 19? In any event, 2008 was the first year you could have done a direct rollover from a 401k to your Roth IRA. In your Roth IRA, this is treated as a 2008 conversion, and is available without tax or penalty since it has been held in your Roth IRA over 5 years.