Is it easy to withdraw contributions from a Roth IRA?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
markcoop
Posts: 869
Joined: Fri Mar 02, 2007 8:36 am

Is it easy to withdraw contributions from a Roth IRA?

Post by markcoop » Thu Feb 07, 2019 2:37 pm

I am 52 years old and debating whether I want to put some money into a Roth IRA as a holding place. I currently max out my 401K savings and feel that is enough for my retirement. Making that assumption, I thought a Roth IRA would be a great place to temporarily hold some of my money. Benefits include not paying any yearly income tax on gains, money is not counted against financial aid and money is growing tax free. I am not sure when I would need the money. I currently have a Roth IRA opened from years ago that I stopped contributing to a few years ago. I realize I would only have access to the contributions tax-free without any penalty.

My question has to do with the mechanics of making the withdrawals. I logged onto my account at Vanguard and decided to try to go through the process and cancel on the last screen. I clicked I wanted to sell a Vanguard mutual fund from my Roth IRA. It then started asking me questions about federal and state tax withholding and how Vanguard needs to notify the IRS because I'm under 59 1/2. I believe I would withhold nothing since no taxes would be due and I shouldn't care about the IRS being notified. I imagine I would also get a 1099-R at tax time and would have to answer some Turbotax questions that I only withdrew contributions (I assume that means it's a qualified Roth withdrawal??). I assume it doesn't matter which Roth mutual fund I withdraw the money from as I can simply just say I have enough in contributions to cover it. That raises the question if I have to keep track of contributions and withdrawals of contributions. All this started to sound like a hassle.

For anyone who has withdrawn Roth contributions, was it a big deal?
Mark

bloom2708
Posts: 5494
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by bloom2708 » Thu Feb 07, 2019 3:30 pm

Here is a good summary:

https://www.rothira.com/roth-ira-withdrawal-rules

Under 59.5 you can withdraw your contributions without penalty if they have been in for 5 years.

Earnings grow tax free if you withdraw the earnings after 59.5. You still have 10 years to contribute, so yes, a Roth is a great place to stash more funds beyond your pre-tax 401k.

$6k is the limit for 2019. $5,500 for 2018. You can contribute if you are below the income phase out limits and have not filed your 2018 taxes yet.
"A Stoic believes they don’t control the world around them, only how they respond--and that they must always respond with courage, temperance, wisdom, and justice." --Daily Stoic

User avatar
obafgkm
Posts: 310
Joined: Fri Mar 11, 2016 9:12 am
Location: Pennsylvania

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by obafgkm » Thu Feb 07, 2019 3:59 pm

bloom2708 wrote:
Thu Feb 07, 2019 3:30 pm
$6k is the limit for 2019. $5,500 for 2018. You can contribute if you are below the income phase out limits and have not filed your 2018 taxes yet.
Actually, for the original poster (OP), $7000 is the limit for 2019, and $6500 is the limit for 2018, due to her/his being 50 or over as of 2018.

Retired2013
Posts: 120
Joined: Sat Dec 12, 2015 2:53 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by Retired2013 » Thu Feb 07, 2019 4:04 pm

Yes it's that easy.

I asked myself the same question when I was 58 so I tested it for $100 withdrawal. You'll receive a 1099-R. Park excess cash there and earn tax free growth as you know.

retiredjg
Posts: 35078
Joined: Thu Jan 10, 2008 12:56 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by retiredjg » Thu Feb 07, 2019 4:04 pm

bloom2708 wrote:
Thu Feb 07, 2019 3:30 pm
Under 59.5 you can withdraw your contributions without penalty if they have been in for 5 years.
A lot of people think this but it is not quite correct. You can withdraw your contributions without penalty any time. There is no requirement for the 5 years.

retiredjg
Posts: 35078
Joined: Thu Jan 10, 2008 12:56 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by retiredjg » Thu Feb 07, 2019 4:15 pm

markcoop wrote:
Thu Feb 07, 2019 2:37 pm
That raises the question if I have to keep track of contributions and withdrawals of contributions. All this started to sound like a hassle.

For anyone who has withdrawn Roth contributions, was it a big deal?
It is not a big deal if you have good records of your contributions. A contribution could be direct or a conversion or even a rollover from a Roth 401k. Form 8606 Part III is used for Roth withdrawals - there is a worksheet in the instructions that seems complicated but is not if you have the information at hand.

Yes, those records are up to you. Your custodian does not have some of this information. Unfortunately, a lot of people have never kept up with it.

User avatar
Spinola
Posts: 98
Joined: Fri Nov 16, 2018 1:32 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by Spinola » Thu Feb 07, 2019 4:23 pm

retiredjg wrote:
Thu Feb 07, 2019 4:04 pm
bloom2708 wrote:
Thu Feb 07, 2019 3:30 pm
Under 59.5 you can withdraw your contributions without penalty if they have been in for 5 years.
A lot of people think this but it is not quite correct. You can withdraw your contributions without penalty any time. There is no requirement for the 5 years.
That is my understanding also.

retiredjg
Posts: 35078
Joined: Thu Jan 10, 2008 12:56 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by retiredjg » Thu Feb 07, 2019 4:32 pm

Spinola wrote:
Thu Feb 07, 2019 4:23 pm
retiredjg wrote:
Thu Feb 07, 2019 4:04 pm
bloom2708 wrote:
Thu Feb 07, 2019 3:30 pm
Under 59.5 you can withdraw your contributions without penalty if they have been in for 5 years.
A lot of people think this but it is not quite correct. You can withdraw your contributions without penalty any time. There is no requirement for the 5 years.
That is my understanding also.
In bloom's defense, that website bloom linked is not a reliable resource in my opinion. This is not the first time I've seen errors there. Or it may not be errors, but poor writing (like being written by a committee) which can cause people to read things wrong. It says the right thing in at least 2 places, but says something that appears to be different (even contradictory) in other places.

Chuck
Posts: 2066
Joined: Thu May 21, 2009 12:19 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by Chuck » Thu Feb 07, 2019 4:51 pm

What confused me at first was the fact that any withdrawal before 59.5 is considered an early withdrawal, subject to penalty. Then you go do the worksheet, and as long as your total Roth withdrawals are less than your total Roth contributions, your penalty is zero. But you get a 1099-R that says "early distribution" (or "non-qualified" I don't remember) and have to do the penalty worksheet. So technically, you do have a penalty, but the penalty is zero??

User avatar
Epsilon Delta
Posts: 7775
Joined: Thu Apr 28, 2011 7:00 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by Epsilon Delta » Thu Feb 07, 2019 4:58 pm

retiredjg wrote:
Thu Feb 07, 2019 4:04 pm
bloom2708 wrote:
Thu Feb 07, 2019 3:30 pm
Under 59.5 you can withdraw your contributions without penalty if they have been in for 5 years.
A lot of people think this but it is not quite correct. You can withdraw your contributions without penalty any time. There is no requirement for the 5 years.
As importantly withdrawal of contributions is tax and penalty free. Some Roth withdrawals are penalty free but still taxed as ordinary income.

I have withdrawn Roth contributions. It's pretty easy if you have good records of all your Roth ins and outs (contributions, recharacterizations, withdrawals and rollovers from employer plans.) It would be pretty hard if you do not have the records and try to reconstruct from memory. Have a look at lines 22 and 24 (if there are conversions) of form 8606. If you can fill those out your good. If you can't TurboTax is not going to help.

Topic Author
markcoop
Posts: 869
Joined: Fri Mar 02, 2007 8:36 am

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by markcoop » Thu Feb 07, 2019 5:02 pm

retiredjg wrote:
Thu Feb 07, 2019 4:15 pm
markcoop wrote:
Thu Feb 07, 2019 2:37 pm
That raises the question if I have to keep track of contributions and withdrawals of contributions. All this started to sound like a hassle.

For anyone who has withdrawn Roth contributions, was it a big deal?
It is not a big deal if you have good records of your contributions. A contribution could be direct or a conversion or even a rollover from a Roth 401k. Form 8606 Part III is used for Roth withdrawals - there is a worksheet in the instructions that seems complicated but is not if you have the information at hand.

Yes, those records are up to you. Your custodian does not have some of this information. Unfortunately, a lot of people have never kept up with it.
Thanks for the replies. All my contributions have been direct. However, I have never kept track of contributions. Everything is with Vanguard and I may have all the records. But does the past really matter? I have something like $100K in the IRA now. Assuming I add for this year and last year, I know about those contributions. If I withdraw, it will be based on those contributions. But it sounds like you are saying to fill out form 8606 I have to have my whole history. Is that correct? If that is the case, I think I can figure it out. I did max out my contributions for all years except the last few.
Mark

retiredjg
Posts: 35078
Joined: Thu Jan 10, 2008 12:56 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by retiredjg » Thu Feb 07, 2019 5:25 pm

markcoop wrote:
Thu Feb 07, 2019 5:02 pm

Thanks for the replies. All my contributions have been direct. However, I have never kept track of contributions. Everything is with Vanguard and I may have all the records.
That makes it easier. If all your contributions have been direct, go back through your entire transaction history and write down all the different contributions over the years.

But does the past really matter?
Yes, the past matters. When withdrawing from Roth in a case like yours with only direct contributions, all your withdrawals will be considered contributions until you get to the total of those contributions. After that, you are withdrawing earnings that have occurred inside the roth IRA.

The contributions are not subject to tax or penalty. The earnings are subject to both tax and penalty up until age 59.5 and subject to tax (but no penalty) even after 59.5 if your first contribution was not more than 5 tax years ago. The only way to know when you hit the line between contributions and earnings is to know what your contributions were.


I have something like $100K in the IRA now. Assuming I add for this year and last year, I know about those contributions. If I withdraw, it will be based on those contributions.
Well yes and no. What if you need to withdraw another amount 15 or 20 years from now? If you have not kept up with your contributions and if you take a shortcut now and incorrectly report your basis, you will have messed up things in the future.

But it sounds like you are saying to fill out form 8606 I have to have my whole history. Is that correct? If that is the case, I think I can figure it out. I did max out my contributions for all years except the last few.
The form asks for your basis (all your contributions). The only way to do it right is to start at the beginning and do your entire history on the worksheet.

Do your future self a favor and figure it out and do it right the first time. It should not be too hard now. It may be impossible to reconstruct later.

Topic Author
markcoop
Posts: 869
Joined: Fri Mar 02, 2007 8:36 am

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by markcoop » Thu Feb 07, 2019 5:32 pm

Thank you. That is what I will do.
Mark

SuzBanyan
Posts: 219
Joined: Thu Jun 02, 2016 11:20 am

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by SuzBanyan » Thu Feb 07, 2019 5:46 pm

Why does 15 or 20 years from now matter for MarkCoop, who is currently age 52? Can’t he can withdraw both contributions and earnings tax and penalty free as soon as he is 59.5? If he is going to understate his contributions, he needs to make sure he doesn’t need or want to withdraw any additional contributions in the next 7.5 years.

retiredjg
Posts: 35078
Joined: Thu Jan 10, 2008 12:56 pm

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by retiredjg » Thu Feb 07, 2019 5:54 pm

SuzBanyan wrote:
Thu Feb 07, 2019 5:46 pm
Why does 15 or 20 years from now matter for MarkCoop, who is currently age 52? Can’t he can withdraw both contributions and earnings tax and penalty free as soon as he is 59.5? If he is going to understate his contributions, he needs to make sure he doesn’t need or want to withdraw any additional contributions in the next 7.5 years.
You are correct. I didn't go back and check the original poster's age when I answered that question. My answer would be largely the same though - taking a shortcut on this can only hurt the person doing the shortcut.

Topic Author
markcoop
Posts: 869
Joined: Fri Mar 02, 2007 8:36 am

Re: Is it easy to withdraw contributions from a Roth IRA?

Post by markcoop » Mon Feb 11, 2019 9:40 pm

Quick update in case someone reads this thread in the future. After deciding to do this, I changed my mind due to potential financial aid implications. Withdrawal of contributions from a Roth IRA is considered untaxable income and detrimental to financial aid. As I have a high school sophomore, it would mean in order not to affect any financial aid, I wouldn't be able to withdraw any money for the next 4 years. I may reconsider in a couple of years depending upon her school choice.
Mark

Post Reply