Please confirm my understanding of the Roth IRA 5 year rule

[Illinoiscoco]

Is the following example accurate in terms of what tax is owed on Roth IRA withdrawal? Assume person is older than 59 1/2:

Year 1: Created Roth IRA and converted 50,000 from 401K to Roth.

Year 2: Converted 50,000 add'tl to Roth

Year 3: Total value is 115,000.
- Can withdraw 100,000 or less without paying income tax

- If withdraw more than 100,000, pay income tax on the amount greater than 100,000 (the earnings). For example, if withdraw 110,000, pay income tax on 10,000.

Also, what federal tax form do you use to report Roth withdrawals?

Thanks!!

[RyeBourbon]

This sounds right to me, but it might depend on whether the second conversion was taxable or not (e.g. from post-tax IRA or 401k).

Form 8606 is used to report non-qualified Roth withdrawals.

[HomeStretch]

For a person age 59-1/2+, only the 5-tax-year rule for the age of the initial Roth account matters. The second 5-year rule for conversions does not apply.

If the Roth IRA is not yet qualified, the contributions (which come out before earnings) of $100k may be withdrawn tax free, but the earnings of $15k cannot be withdrawn tax free until the Roth IRA is qualified.

[bonesly]

Is the following example accurate in terms of what tax is owed on Roth IRA withdrawal? Assume person is older than 59 1/2:

Year 1: Created Roth IRA and converted 50,000 from 401K to Roth.

Year 2: Converted 50,000 add'tl to Roth

Year 3: Total value is 115,000.
- Can withdraw 100,000 or less without paying income tax

- If withdraw more than 100,000, pay income tax on the amount greater than 100,000 (the earnings). For example, if withdraw 110,000, pay income tax on 10,000.

In Year-3, you do not meet the 5-year rule (assuming this is your only Roth IRA). While you can always take the contributions at any time penalty free (the $100K), any withdrawal of earnings (any/all of the $15K) before the initial 5-year clock is an "unqualified" distribution and likely comes with a 10% early withdrawal penalty in addition to being treated as ordinary income (rather than being tax-free). Despite being older than 59-1/2 (which passes step 2a), it would seem the case you describe is unqualified because it fails step 1 of the 2-step qualification rule.

IRS Pub 590B on Roth IRA Qualified Distributions.

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.

2. The payment or distribution is:
a) Made on or after the date you reach age 59½,
b) Made because you are disabled (defined earlier),
c) Made to a beneficiary or to your estate after your death, or
d) One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

In addition to the IRS Pub590B, the three major brokerages recommended here all have articles on Roth withdrawal rules.
Vanguard
Fidelity
Schwab

Also, what federal tax form do you use to report Roth withdrawals?

You'll likely receive a 1099R from the brokerage holding your Roth IRA for any distributions (including rollovers). How that 1099R income is taxed is based on the 1040 filing rules; you could run a mock tax return in TurboTax to get an idea of the tax burden for withdrawing $115K from a Roth that is NOT 5-years old, but which has $100K in contributions.