When Can I Start Taking Distributions From My Roth IRA?

Thursday, December 11, 2014

By Joe Cicchinelli and Beverly DeVeny
Follow Me on Twitter: @theslottreport 

This week’s Slott Report Mailbag looks at the Roth IRA 5-year rules and how they apply to an investor who wants to start taking distributions from his Roth IRA. Also, it’s year-end, so we look at a popular question involving the process of determining if you have a required minimum distribution (RMD), and if so, how much. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

Hello Ed,

I would like to convert a small traditional IRA to a Roth IRA and then combine this with a Roth account I have held for over five years.

My questions are: (1) when can I begin taking distributions (principal +earnings)? I am 57 years old. And (2) is there a waiting period before the two Roth accounts can be combined?

Thank you

Answer:
You can begin taking distributions of any Roth IRA contributions immediately without tax or penalty. After you have withdrawn all of your contributions from all of your Roth IRAs, then converted funds are paid out next. They will be tax-free because they were already taxed when you converted them. However, any converted funds taken within 5 years of the date of conversion, and when you’re under age 59.5, are subject to the 10% early distribution penalty unless an exception applies. Lastly, earnings are paid out and will be tax and penalty free if you have held any Roth IRA for more than 5 years and you’re over age 59 ½, or disabled, or dead. Your Roth IRAs can be combined at any time, but it is generally a good idea to wait until the recharacterization period is over.

2.

Can you help me with this question?

I had about $800,000 in a qualified plan. I took the calculated RMD of $34,000 from the plan in June 2013.

At the same date in 2013, I also rolled out $100,000 to a new IRA. I had no previous IRA. I did not take an RMD from the IRA in 2013.

Do I need to do that now, belatedly?  It seems to me the original 2013 RMD calculation from the qualified plan was calculated based on all of those funds, but on the other hand, a qualified plan RMD doesn’t satisfy an IRA RMD, right?

Thanks for any help or direction you can provide.

Answer:
A qualified plan RMD does not satisfy an IRA RMD.

Your IRA RMD is calculated on your prior year-end account balance. Since your December 2012 IRA balance was $0, you had no IRA RMD for 2013. You did everything correctly.

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