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Post 29584 on the Retire Early board is asserting the position in italics, which does not match my understanding of Roth IRA withdrawals (my understanding is more in line witht he prior poster):

[Prior poster] <<<<I looked into converting my IRAs into Roth, but from what I read ROTH IRAs aren't eligible for 72T withdrawals (i.e. you have to wait til age 59 1/2 to start withdrawing money penalty-free from a Roth).>>>>

Let's stop here for a second. The statement about Roth IRAs and 72(t) withdrawals is incorrect. I suspect that the original poster is confusing nonqualified distributions with distributions that result in a penalty.

Section 72(t) deals with SEPP's, a way of withdrawing money penalty-free from your IRA before age 59 1/2. This applies to both Roth and traditional IRAs, and if you meet its requirements, there won't be any penalty due on your withdrawals.

However, there is no provision that makes SEPP distributions from a Roth IRA qualified Roth distributions. Thus, if you do a SEPP from a Roth IRA, you pay tax on the earnings, but no penalty.

Now, back to the quoted passages:

"you can withdraw any rollover amounts 5 years after the rollover date without any penalty.

This is not true. (The original author is using "rollover" to refer to amounts converted from traditional to Roth.) Even though you have paid tax at the time of conversion, if you withdraw the converted amount in a nonqualified distribution, you will be subject to the 10% penalty, unless one of the penalty exceptions applies. This is explained in the instructions to Form 8606. It doesn't matter that the distribution doesn't add to your taxable income.

the tax must be paid on the rollover amount in the year of the rollover. let's say you rollover $30K per year for the next five years. you pay tax each year on that $30K. then, in each of the following five you can
withdraw $30K from your roth account(s) and owe neither tax nor penalty. indeed, you can continue rollovers during those years, as well, and even after you turn 59 1/2.

once you are 59 1/2 you can start to tap the EARNINGS from your roth accounts tax free and penalty free, as well. however roth withdrawals are first-in-first-out, so you must stop rollovers five years before you want to tap the roth earnings, to stay penalty free."

Here we have another two problems. A nonqualified distribution from a Roth IRA results in taxable income if you've previously distributed all your previously-taxed contributions/conversions. However, no penalty applies to a nonqualified distribution if you meet one of the exceptions. One of those exceptions is having reached 59 1/2.

The second problem with this passage is the calculation of the 5-year period. It doesn't date from each contribution, just from the date of the first contribution.

JAFO again:

My understanding is that rollover amounts withdrawn from a Roth IRA before age 59 1/2 (barring disability or some toher qualifying event) are taxable and penalized. I further understood that it was only contributions that could be withdrawn without tax before age 59 1/2 (because tax was paid going in). IOW, rollovers are not treated teh same as new contributions. I also beleive that the other poster is confussed about the 5-year rule, but that is not the thrust of my question.

I hope I straightened this out in the second discussion above. You're wrong about the withdrawn conversion being (again) included in income, but you're right about the penalty. You're also right about the 5-year period.

Phil Marti
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