Withdrawal Rules for Contributory Roth
With all of the rules regarding conversions to Roth IRAs, I am now questioning my own knowledge of contributory non-converted Roth IRAs. Assuming the client is under 59 1/2, he opened up a Roth IRA in 2000 and began investing $5,000 per year for 2 years for a total of $10,000. Assuming the value of his Roth IRA is now $11,000, can he withdraw the contributions of $10,000 for any purpose or reason even if he has not held his Roth IRA for 5 years? Does each annual contribution have a 5 year wait so he could only withdraw his first $5,000 contribution after 5 years? I just need to be certain I am not mixing up the two rules for non-deductible contributions with the conversions assuming the client takes their contributions out prior to 59 1/2.
Thanks for the clarification,
TC
Permalink Submitted by Alan Spross on Sat, 2009-12-19 00:43
Todd,
Yes, the 10,000 could be distributed at any time tax and penalty free. There is no waiting period for regular contributions, just for conversions to avoid penalty if under 59.5.
In your example here, if client were to also take out any earnings, the earnings would be taxable and subject to 10% penalty since the Roth is not yet qualified. It will be qualified once client reaches 59.5, at which the entire account would be tax and penalty free.
Permalink Submitted by charles lore on Sun, 2009-12-20 15:44
only 1 five yr waiting period that start Jan 1 or taxable yr for which contribution was made. In conversions only are there restarts of waiting periods
Permalink Submitted by John Lugauer on Tue, 2014-02-11 16:00
I’m trying to work with an accountant who does not agree that Pub 590 indicates a Roth contribution is tax AND penalty free if taken out prior to 59 1/2 and earlier than 5 years. While I agree Pub 590 could be worded better, is there any other source that clearly states the Roth contribution is tax AND penalty free? She agrees it would be free from tax as a return of contribution/principal, but she believes the law still includes the 10% penalty on the return of contribution within the first five years.Thanks for any references I can source. John
Permalink Submitted by Alan - IRA critic on Tue, 2014-02-11 16:28