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Investing/Strategies / Retirement Investing
|Subject: Re: Roth question||Date: 2/17/2014 3:35 PM|
|Author: BruceCM||Number: 74284 of 76395|
Assuming this is not a qualified withdrawal and you are not yet 59.5 or have met one of the other exceptions to the 10% early withdrawal penalty, then the withdrawals are ordered and really not that difficult, and there isn't any dollar tracing...only totals.
Roth IRAs do not draw down like a TIRA or retirement plan with basis, from which withdrawals must be prorated for the basis. With a Roth, its basis out first. So if you (or your IRA custodian if you've had your Roth IRA at only one custodian) have kept good records, you'll know how much you've contributed to your Roth over the years (the basis) and also how much you've withdrawn (from past forms 1099R and filed forms 8606). This net contribution basis remains unchanged until you make another direct contribution.
The subsequent Roth conversions you do will stack the conversion amount on top of this net basis....where it will sit until you either reach 59.5 at which time in then mixes in with the existing contribution basis or you withdraw it (after having withdrawn all contribution basis its sitting on). Each Roth conversion you do will stack on top of the previous conversion. If you do back-doors every year, you'll have conversions stacked 5 high at any given time!
If you make withdrawals before age 59.5, you withdraw the contribution basis first (bottom of the stack), then you'll withdraw the oldest conversion next and so on. The withdrawal of the conversion basis will generate a 10% early withdrawal penalty until you reach 59.5 or have another exception. Once all the 'bases' have been withdrawn, then your into earnings, and that will come out with the 10% penalty AND be includable as income.
The takeaway on this, is to keep good records on....
1. Past direct contributions: Forms 5498
2. Past non-qualified withdrawals: Forms 1099R and 8606
3. The amount and year of each conversion contribution: Form 5498
The light at the end of the tunnel? When you've reached age 59.5 and have held any Roth at least 5 years, then all withdrawals are qualified, all conversions become part of your qualified Roth and all the above becomes moot.
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