Withdrawing From Roth
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I understand that you need to have a Roth account for 5 years before you can withdraw interest from the account tax free. What I wonder is if you have two or more Roth accounts and only one account is 5 years old can you withdraw from the other Roth accounts that are younger than five years tax free? Does the one Roth being 5 years old qualify you to withdraw from ANY of your Roth accounts tax free?
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To start, no, it does not matter which ROTH IRA account you are pulling from.
Assuming no conversions or rollovers within the past 5 years, and you set up any ROTH IRA for yourself more than 5 years ago, you should not have to worry about the 5-year language.
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You can’t take the interest tax free unless you’re age 59.5. You can take the principal. If you take interest/earnings, you have to pay a penalty. And as velociraptor explained, no, it doesn’t matter which account you’re pulling from.
It’s still inadvisable to do this unless absolutely necessary, since you can’t go and put it back in. It’s not a loan to yourself. It’s just lost tax-free growth opportunity.
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@dtasfab while I do agree, some people view ROTH IRA contributions as their emergency fund. You can let the money earn some gains, but then withdraw the contributions if you ever really need to. I am not a fan of emergency funds, but if I was, this is how I’d do it. Just another take on it, because it’s not so black and white. A lot of people do contribute, knowing they’ll possibly withdraw and can’t put the money back in, and are “ok” with that.
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@velociraptor said in Withdrawing From Roth:
To start, no, it does not matter which ROTH IRA account you are pulling from.
Assuming no conversions or rollovers within the past 5 years, and you set up any ROTH IRA for yourself more than 5 years ago, you should not have to worry about the 5-year language.
So you can’t pull the money out if you’ve been doing backdoor IRA?
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@dangeruss said in Withdrawing From Roth:
@velociraptor said in Withdrawing From Roth:
To start, no, it does not matter which ROTH IRA account you are pulling from.
Assuming no conversions or rollovers within the past 5 years, and you set up any ROTH IRA for yourself more than 5 years ago, you should not have to worry about the 5-year language.
So you can’t pull the money out if you’ve been doing backdoor IRA?
You have to have done the conversion over five years ago, I believe.
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@dangeruss said in Withdrawing From Roth:
@velociraptor said in Withdrawing From Roth:
To start, no, it does not matter which ROTH IRA account you are pulling from.
Assuming no conversions or rollovers within the past 5 years, and you set up any ROTH IRA for yourself more than 5 years ago, you should not have to worry about the 5-year language.
So you can’t pull the money out if you’ve been doing backdoor IRA?
There are various ordering rules and this isn’t my area. However, broad strokes: each conversion is treated as one and under the ordering rules, the oldest conversion is what you’d be distributing from first. However, even before you’d be taking distributions of the conversion amount, you’d have to take a distribution of all of your regular contributions.
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I have been dribbling (converting) funds from my IRA’s into Roth’s for 8 years and wondered about the specifics of withdrawing. I have no plans to withdraw anytime soon. In fact I plan to keep dribbling my IRA funds into Roth’s for many more years. Roth’s are one of the best ways to shelter your funds from taxes and I plan to take full advantage.
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I have been recommending opening a Roth, if only $100, to many young folks to eliminate that 5 year rule early and wondered if that early Roth would apply to helping withdrawing any funds from later Roth’s that are not 5 years old.
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First off, this isn’t legal advice. See your CPA/Attorney/Financial Adviser.
There are kind of two “Five year rules”,
- The 5-year rule for IRA beneficiaries to withdraw 100% of the IRA by December 31 of the year containing the fifth anniversary of the owner’s death.
- The 5-year rule for Roth Conversions
Bankrate explains the 5 year rule
Also AAII has an excellent review of ordering rules
Lastly the IRS Pub 590-B is the reference sourceIF you take distributions early, you need to keep good records of the contributions.
You’ll need to order them into three groups.- Regular contributions.
- Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion and rollover contributions into account as follows:
– Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the
– Nontaxable portion. - Earnings on contributions.
Once the conversion occurs from Traditional to Roth, you need to wait 5 years to take a distribution without penalty, even if it’s an inherited Roth account.
The short of it is that you will want to distribute only up to contributions until five years pass from your conversion.
