Roth IRA Early Distribution

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cavman22
Posts: 4
Joined: Wed Oct 04, 2017 1:47 pm
Location: Denver

Roth IRA Early Distribution

Post by cavman22 » Wed Oct 11, 2017 4:41 pm

Hello All,

I have a question about an early distribution for my Roth. Last December 12/14/2016, I opened a Roth IRA with $1050 at Vanguard to go along with my 401k. Little would we know, my wife received a substantial year end bonus at the end of December that put us well over the maximum eligible salary to fund a Roth IRA for 2016.

After doing a little bit of research (Probably not enough) I elected to pull the funds out of the account on 1/06/2017. (Now i'm aware we could have done the back door).

The timeline of events wen like this

12/14/2016 - Purchased Roth IRA Shares (Vanguard Target 2050) for $1050
12/28/2016 - Received Dividend on the shares $20.08 and reinvested
12/28/2016 - Received ST Gains of $1.35 and LT Gains of $2.82 and reinvested
1/6/2017 - Sold Shares and pulled $1056, and transferred to bank account

My vanguard account "Dividend and Capital Gains Distributions" Section shows total distributions of $24.25 for 2016. I Sold the shares in 2017. I did not claim anything on my 2016 Income Taxes, assuming i would receive a form. So will I receive a form from them for my 2017 taxes? I believe i have to claim and be fined on my small amount of gain, correct?

I know it's a very small amount of money, but i wanted to be sure i was not breaking any rules and filed correctly.

Thanks very much.

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Earl Lemongrab
Posts: 2637
Joined: Tue Jun 10, 2014 1:14 am

Re: Roth IRA Early Distribution

Post by Earl Lemongrab » Wed Oct 11, 2017 5:45 pm

As that was a 2016 contribution, you should still be able to recharacterize it as a TIRA contribution then do backdoor Roth. Don't take a distribution. You need to hurry though, the deadline is in a few days.
This week's fortune cookie: "The stock market may be your ticket to success." I sure hope so!

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celia
Posts: 6909
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Roth IRA Early Distribution

Post by celia » Wed Oct 11, 2017 6:25 pm

^^^ The OP already removed the money last January.

For your 2016 taxes, there shouldn't be any tax implication. Just make sure line 32 of your 2016 Form 1040 is 0.

For your 2017 taxes, you should receive a 1099-R for the Removal of the Excess Contribution (you were only eligible to contribute $0 to a Roth). There will be no taxes on the contribution amount, but the gain will be taxed and be subject to a 10% early withdrawal penalty if you were under 59.5 at the time.

You both would likely be interested in contributing to a Backdoor Roth IRA. But first you should understand the reporting requirements on Form 8606 and the tax implications should you already have any money in any non-Roth IRAs.

cavman22
Posts: 4
Joined: Wed Oct 04, 2017 1:47 pm
Location: Denver

Re: Roth IRA Early Distribution

Post by cavman22 » Thu Oct 12, 2017 10:53 am

OK thanks for the update. I will watch for the 1099.

I've already funded my 2017 Roth, and we are in no danger of hitting the salary max this year. Last year was kind of a freak/lucky year.

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