Help with Roth IRA contribution withdrawal schedule

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Ed_Sandwich
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Joined: Mon Mar 20, 2017 12:47 pm

Help with Roth IRA contribution withdrawal schedule

Post by Ed_Sandwich » Mon Mar 20, 2017 12:55 pm

Please forgive the relatively basic question:

Let's say I have a Roth IRA with Vanguard with $10k contributed, and $15k balance. Due to an unforeseen circumstance I will be cash flow negative for the next 10 months, and need access to an extra $1k per month.

Should I sell $1,000 worth of shares each month? Or should I withdraw larger chunks to minimize transaction cost?

retiredjg
Posts: 30329
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help with Roth IRA contribution withdrawal schedule

Post by retiredjg » Mon Mar 20, 2017 1:24 pm

It may not be as simple as that.

You can only withdraw your direct contributions to Roth IRA without penalty or tax unless your Roth IRA is "qualified". If the $10k got in there by some other method, there could be both taxes and penalty on that first $10k.

It appears the extra $5k is earnings that have occurred since the money got into the Roth IRA. If that is correct, that last $5k will incur both tax and an additional 10% penalty if you take it out and if you are less than 59.5 years old.

If you need more information on that, we need more information about you and your Roth IRA.

As for the withdrawals, Vanguard does not charge you to sell the funds in your Roth IRA. There are no transaction costs so it does not matter if you sell once a week or once a month or twice in the next 10 months. If you link your checking account to your Vanguard account, you can simply go into the Vanguard website and click a few times and the money is in your checking account in 2 days.

Ed_Sandwich
Posts: 2
Joined: Mon Mar 20, 2017 12:47 pm

Re: Help with Roth IRA contribution withdrawal schedule

Post by Ed_Sandwich » Mon Mar 20, 2017 1:52 pm

Thanks for the reply, that is helpful.
You can only withdraw your direct contributions to Roth IRA without penalty or tax unless your Roth IRA is "qualified". If the $10k got in there by some other method, there could be both taxes and penalty on that first $10k.


Let's say $5,000 of contributions was purchased directly through Vanguard, and the remaining $5,000 was part of a Roth 401k Rollover. Would the rollover amount be taxed/penalized?

Age is under 59.5 so these would be early withdrawals.

retiredjg
Posts: 30329
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help with Roth IRA contribution withdrawal schedule

Post by retiredjg » Mon Mar 20, 2017 2:46 pm

The first $5k should be easy peasy because it was a direct contribution to Roth IRA. I never can remember the answer to the rollover from Roth 401k question. But Alan S. knows. If he doesn't show up, you could private message him. Or others might know as well.

retiredjg
Posts: 30329
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help with Roth IRA contribution withdrawal schedule

Post by retiredjg » Mon Mar 20, 2017 2:53 pm

See if this helps.

http://fairmark.com/retirement/roth-acc ... -accounts/

Part depends on when you originally opened your Roth IRA and part depends on how long it has been since the rollover.

Of the $5k rollover, do you know how much was your contribution?

Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Help with Roth IRA contribution withdrawal schedule

Post by Alan S. » Mon Mar 20, 2017 6:48 pm

In addition to the 5k of regular Roth IRA contributions you made, add the amount from Box 5 of the H coded 1099R reporting the Roth 401k rollover to the 5k. This box 5 amount could be either more or less than the amount of the rollover in Box 1. That total (5k plus Box 5) is treated as regular Roth IRA contributions, available anytime without tax or penalty.

Whatever the total amount is would be reported on line 22 of Form 8606 when you report your Roth IRA distribution. The distribution has to be reported on Form 8606 even if it is entirely non taxable. Amounts you withdraw up to line 22 are not taxable. Amount you withdraw in addition to line 22 are subject to tax plus 10% penalty.

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