Roth IRA Distribution Ordering Rules – Keep It Simple

Monday, October 30, 2023

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

 

Within the 400-page Ed Slott advisor training manual, we include a basic chart that outlines the Roth IRA distribution ordering rules and the availability of those specific dollars. When presenting the material to a live audience, I always say it is my favorite page. Those in the crowd usually joke and ask incredulously, “You have a favorite page in this book?”

Yes. For such a simple graph, I think it will get a person through 95% of all Roth IRA distribution questions (and that percentage might be low). In fact, I keep the chart on my computer desktop and have shared it with so many people I lost count. The Slott Report format precludes me from sharing the actual chart, but I can share the words on it. Some key items I always mention during our training programs before discussing the chart:

  • Remember – the IRS views ALL of a person’s Roth IRAs as one big bucket of money. It does not matter how many Roth IRAs you maintain.
  • This is only applicable to Roth IRAs. These ordering rules do not consider any Roth dollars a person may have in a 401(k) nor does it factor in any inherited Roth IRAs.
  • Pay particular attention to the “OR” and “AND” words. These little words make a big difference as to availability of the Roth IRA funds.
  • When taking a distribution from a Roth IRA, this is the order in which the dollars come out, 1 through 3. You cannot access your converted dollars until the contributions have been depleted, and you cannot access any earnings until both the contributions and conversions are gone.

Keep it simple.

Drumroll…

And now, the words on my favorite chart…

Roth IRA Distribution Ordering Rules

 

1. Contributions. No tax. No penalty.

 

2. Conversions. No tax. No penalty if distributed after 5 years OR distributed after age 59 ½.

 

3. Earnings. No tax or penalty if distributed after 5 years AND 59 ½.

 

Posted in: , , , , , , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.