Are converted Roth IRA Contributions Penalty Free Withdrawal?

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Doc7
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Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

My understanding is that a Roth IRA contribution is withdrawable without penalty or taxes.

Is the non-deductible TIRA converted to Roth IRA treated the same (aka, the “Backdoor Roth IRA”)? Or is a conversion different than a contribution in this scenario?

In case any of this info matters, in this case we are 36, no plans to retire in next 15 years, Roth IRAs are 10+ years old and there are no other IRA assets. Due to increasing AGI I think it is safer for us to put money in Roth utilizing Backdoor methodology, as a few years ago some high overtime and bonus income meant that I was above the Roth AGI limit.
MrJedi
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by MrJedi »

There is a 5 year rule on withdrawing conversions, doesn't matter if deductible or not. The nontaxable basis is not subject to penalty but any taxable conversion amount is subject to penalty.
Last edited by MrJedi on Mon Apr 05, 2021 2:19 pm, edited 2 times in total.
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David Jay
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by David Jay »

In all cases, the amount of each conversion can be withdrawn tax free in 5 years. Pre-tax and after-tax conversions have somewhat different treatment. The future earnings (inside the Roth) on the conversion are taxable until age 59.5
Last edited by David Jay on Mon Apr 05, 2021 1:03 pm, edited 1 time in total.
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DSInvestor
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by DSInvestor »

Here is a link to fairmark page on Distributions after a Roth IRA conversion:
https://fairmark.com/retirement/roth-ac ... onversion/

Link to Fairmark's Roth page where you will find lots of information on Roth contributions, conversions, recharactsrizations, distributions and Designated Roth accounts:
https://fairmark.com/retirement/roth-accounts/
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sailaway
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by sailaway »

It depends on whether or not any tax was due. The 10% penalty only applies to any amount that was taxed at the time of conversion.

Also, since you already have Roth accounts, all of your direct contributions come out before your first conversion.
HomeStretch
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by HomeStretch »

Doc7 wrote: Mon Apr 05, 2021 12:48 pm My understanding is that a Roth IRA contribution is withdrawable without penalty or taxes.

Is the non-deductible TIRA converted to Roth IRA treated the same (aka, the “Backdoor Roth IRA”)? Or is a conversion different than a contribution in this scenario?...
My understanding is that a non-deductible tIRA contribution converted to a Roth IRA can be withdrawn tax-free and penalty-free at any time, similar to a direct contribution to a Roth IRA. Earnings on both are a different story as per other responses.
greenman1
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by greenman1 »

Each conversion is treated individually, in a First-In-First-Out order (after all your direct contributions first). If you are withdrawing 5 years after the conversion, no tax/penalty is due. If the withdrawal is before 5 years, the taxable portion of the conversion (i.e. the earnings that were converted when you did the backdoor roth), is subject to 10% penalty. And the taxable portion is considered withdrawn first, i.e. you can't get to the non-taxable portion without withdrawing the taxable portion. But, if you are doing the back-door conversion before you have much earnings in the tIRA, the penalty should be minimal.

You would need to keep track of contribution, conversion taxable portion, conversion non-taxable portion each year. I found this page from the Finance Buff very helpful: https://thefinancebuff.com/roth-ira-con ... sheet.html
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

Thank you.

I recently transferred to Fidelity, and before Vanguard closed my accounts, it looked like I only could download statements from my and her Roth IRAs when they became brokerage accounts (approx 2012). I could not find statements for my Roth IRA contributions from 2007-2011. Would this make accessing any Roth money much more difficult? Some portion of my Roth IRA is also a Roth 401K Rollover I did in 2014, i don't know how that (principal vs earnings) is treated either.
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neurosphere
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by neurosphere »

greenman1 wrote: Mon Apr 05, 2021 1:17 pm You would need to keep track of contribution, conversion taxable portion, conversion non-taxable portion each year. I found this page from the Finance Buff very helpful: https://thefinancebuff.com/roth-ira-con ... sheet.html
btw, I just now made this post (viewtopic.php?f=2&t=345220) about a recent discovery in my tax software that allows me to enter/track this information for past and current years, and will carry the data forward.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Alan S. »

Doc7 wrote: Mon Apr 05, 2021 1:21 pm Thank you.

I recently transferred to Fidelity, and before Vanguard closed my accounts, it looked like I only could download statements from my and her Roth IRAs when they became brokerage accounts (approx 2012). I could not find statements for my Roth IRA contributions from 2007-2011. Would this make accessing any Roth money much more difficult? Some portion of my Roth IRA is also a Roth 401K Rollover I did in 2014, i don't know how that (principal vs earnings) is treated either.
Yes, not having your Roth IRA basis records will make it impossible to report any non qualified distributions on Form 8606 correctly. Since most people fail to keep track and cannot always get this data from their custodian or from the IRS, if they take a Roth distribution they probably end up "estimating" their regular Roth contribution basis and perhaps conversion basis as well.

Once you reconstruct your Roth IRA basis, keeping your records current is simple. Fortunately, I think that the many posts here about taxation of Roth distributions are theoretical, since most bogleheads likely do not tap their Roth basis until after their Roth is qualified, and then they do not need tracking anymore.

As for the Roth 401k rollover, if you can locate the 2014 1099R from the Roth 401k, it will show your contribution basis in Box 5 (and Box 5 could even be more than the rollover amount). Treat that Box 5 amount as if it was a regular Roth IRA contribution, and therefore available without tax or penalty anytime.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Doc7 wrote: Mon Apr 05, 2021 12:48 pm My understanding is that a Roth IRA contribution is withdrawable without penalty or taxes.
This is true for direct contributions.

Is the non-deductible TIRA converted to Roth IRA treated the same (aka, the “Backdoor Roth IRA”)? Or is a conversion different than a contribution in this scenario?
A conversion is treated differently, but the final result may be the same.

If you contribute $6,000 and convert $6,000, nothing was taxed as the result of the conversion. So there is no "taxable component" of the conversion. No taxable component to attach a 5 tax year clock to.

If you contribute $6,000 and convert $6,100, you pay tax on $100 and that conversion has a 5 tax year clock attached to the $100. In order to withdraw from Roth (assuming you have never made any direct contributions), you must first take the $100 (paying 10% penalty) and then the other $6,000 is available penalty free.

If the $6,100 has accrued $50 in earnings while sitting there in the Roth IRA and you also take the earnings out....you will owe both tax (ordinary rate) and penalty (10%) on that $50 if you are not yet 59.5 years old (or disabled or dead).
retiredjg
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Doc7 wrote: Mon Apr 05, 2021 1:21 pm Some portion of my Roth IRA is also a Roth 401K Rollover I did in 2014, i don't know how that (principal vs earnings) is treated either.
If you were not yet 59.5 when that rollover occurred, the basis (Roth 401k contributions) flow into Roth IRA basis and the earnings that accrued in the Roth 401k flow into earnings that are accruing in Roth IRA.

However, the answer would be different if there were any in-plan Roth rollovers....however I guess all those clocks would have finished running.
HomeStretch
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by HomeStretch »

Doc7 wrote: Mon Apr 05, 2021 1:21 pm Thank you.

I recently transferred to Fidelity, and before Vanguard closed my accounts, it looked like I only could download statements from my and her Roth IRAs when they became brokerage accounts (approx 2012). I could not find statements for my Roth IRA contributions from 2007-2011. ...
It could be that Vanguard only keeps 10 years of statements available online. You might try calling to ask them to make the older statements available to you.
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neurosphere
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by neurosphere »

HomeStretch wrote: Mon Apr 05, 2021 3:51 pm
Doc7 wrote: Mon Apr 05, 2021 1:21 pm Thank you.

I recently transferred to Fidelity, and before Vanguard closed my accounts, it looked like I only could download statements from my and her Roth IRAs when they became brokerage accounts (approx 2012). I could not find statements for my Roth IRA contributions from 2007-2011. ...
It could be that Vanguard only keeps 10 years of statements available online. You might try calling to ask them to make the older statements available to you.
I have read on BH that Vanguard can provide IRA contribution info going back a long time (forever?!?). But I think I also read here on BH that you can get copies/transcripts of IRA contributions directly from the IRS in some manner.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

Thanks all I guess I will give Vanguard a call and see if they can give me a statement on all my basis back to 07/08 including my rollover of Roth 401k.

I have my 2014 5498 from VG that shows the rollover but it seems to show just one amount, “Rollover Contribution” that does not seem to have any differentiation of earnings vs basis. I’ll see if I have any more documents from my old company.

Edit : I did indeed find my 2014 1099-R that shows my contributions from my old company Roth 401K rollover to Roth IRA, thanks!
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

Not great, and nobody to blame but myself.

I have called Vanguard and they stated that they only retain documents as far as 7 years, so I am unable to obtain my contribution basis for 2007 through 2013.

If I have basis info for 2014-2021 (on my account, I have actual statements and tax records from 2014-present showing $33,500 of Direct Contribution Basis and approx $17,000 of Roth 401k Employer Contributions Rollover basis , and for my wife's account i have statements from 2014-present showing $24K of contribution basis) am I still able to consider that as available for Early Retirement or Emergency fund withdrawal (on a theoretical, not planned situation)? Or does not having the 2007-2013 documents mean I can't just say I am withdrawing some of the above $74K worth of basis because it is FIFO?


And from 2021, and moving forward, I will keep documents of "Backdoor Roth IRA" contribution-conversions, which will be 1 annual per my account and my wife's account, and should contain $0.00 or nearly such with essentially overnight or no interest, in accordance with my understanding of any IRS regs and interpretations thereof and that I can immediately convert non-deductible TIRA contributions. I might need help again to understand the withdrawal of those if 'early retirement' becomes a possibility, given that I will then have a mix of:

"Unknown Contribution Basis" (2007-2013)
"Known contributions" (2014-2021 and beyond, depending on AGI)
earnings on both the above
"Roth 401K Rollover Contribution Basis" (plus earnings)
"Non Deductible tIRA Conversion Contribution Basis" (Backdoor with hopefully no earnings)
retiredjg
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

The only thing to do at this point is go back and estimate your contributions starting with the first one. You can look up on the internet how much was allowed for each year. This may give you an idea of what you did.

In your records, make a note of what is an estimation and what you know for sure. If /when you need to withdraw from Roth IRA before age 59.5, just don't take more than you know "for sure".

Keep your future contributions on this record too. To keep things simpler (eliminate clocks on the backdoors) try to contribute and convert the exact same amount by not allowing any earnings to accrue before the conversion.

Once you reach age 59.5, none of this will matter (since your first Roth IRA contribution was greater than 5 tax years ago).
MrJedi
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by MrJedi »

What about old bank statements from where you transferred into the IRA? That may give you some clues/evidence.
retiredjg
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Doc7 wrote: Tue Apr 06, 2021 7:24 am I might need help again to understand the withdrawal of those if 'early retirement' becomes a possibility, given that I will then have a mix of:

"Unknown Contribution Basis" (2007-2013)
"Known contributions" (2014-2021 and beyond, depending on AGI)
earnings on both the above
"Roth 401K Rollover Contribution Basis" (plus earnings)
"Non Deductible tIRA Conversion Contribution Basis" (Backdoor with hopefully no earnings)
Were all the contributions from 2007 to 2013 direct or could some of them been backdoor? Do you know when you started using the backdoor for your annual contributions? Do you know when you did the Roth 401k rollover and how much of it was from contributions? Have you done any ordinary Roth conversions (not associated with the "backdoor")?

One thing that makes this a little simpler is that you do not need to keep up with earnings. If you contributed $50k and the Roth IRA contains $54k, you have $4k of earnings. The dollar value of earnings changes every day.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

Hm, my online banking service (which has been the same since 2004-2005 when it was known as "ING Electric Orange" and is now Capital One 360), would have been where all my contributions came from. It appears that i cant access my transaction log or statements there prior to 2014 either.

I am virtually positive that I maxed out from 08-13 but virtually positive isn't the same as having evidence for the IRS, so I will continue to look.

I guess one of my questions is, "If I do not have the 08-13 records, can I still withdraw my, for example, 2016 Basis or that is where FI-FO precludes me and I need to have a good idea of 08-13?"

To date, I have never made a Backdoor Roth IRA contribution nor has my wife. It was only the last 2 years when our AGI flirts with phase-out limits that I am now certain I should (as I had to pay the penalty when i realized, 3 weeks ago, that in 2019 my AGI Exceeded the phaseout limit but I had contributed $6K as had my spouse, but i did not contribute anything in 2020 and she contributed only about $1K, so I paid the penalty for the $2-3K over-age on each 2019 contribution by filing an amended 2019 along with a check for the penalty and also filed an amended 2020 return showing that the carryover excess was cleared out by being eligible for $6,000 in 2020 but contribution $0 on mine and ~$1200 on hers).

Because of that, all future contributions will be via backdoor method.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

retiredjg wrote: Tue Apr 06, 2021 8:04 am Were all the contributions from 2007 to 2013 direct or could some of them been backdoor?
Do you know when you started using the backdoor for your annual contributions?
No prior backdoors (not even done one for 2021, as this will be the first year I do one, just because my AGI kind of flirts with the limit)
retiredjg wrote: Tue Apr 06, 2021 8:04 am Do you know when you did the Roth 401k rollover and how much of it was from contributions? Have you done any ordinary Roth conversions (not associated with the "backdoor")?
Yes I have the tax statement 1099-R showing the Roth 401K rollover from employer to Vanguard and further it shows both the Employee Contributions as well as the Earnings (which are in Box 2a listed as a "taxable amount", and Box 2a + 5 = Box 1)

I have never done anything other than Direct contributions and this one rollover in 2014 when i changed employers. No other types of conversions.



It is a virtual certainty, that if we backdoor contribute for the next 20-25 years (currently age 36), i will have enough basis to bridge retirement gaps, even if I can never access the 2008-2013 contributions. But i don't know with the "FI FO" mentioned above that I need to make a solid estimate of those anyway.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by HomeStretch »

For the years you are missing documentation, have you checked your online IRS.gov account to see what tax forms (Forms 5498, 1099R, 8606)!are available online/by request? Those Forms support your Roth IRA basis tracking.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

HomeStretch wrote: Tue Apr 06, 2021 8:58 am For the years you are missing documentation, have you checked your online IRS.gov account to see what tax forms (Forms 5498, 1099R, 8606)!are available online/by request? Those Forms support your Roth IRA basis tracking.

I will go check that now. I found that I saved my TurboTax files for 2007, 2008, 2010, and 2013 filings in my Email by searching the word “Roth” so now I have those years as well, although the only evidence is what I reported on my tax worksheets. I am only missing 09, 11 and 12 now.

I have also confirmed that my wife’s Roth IRA was not established prior to 2016 so I have 100% of the records of contributions for that account.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

HomeStretch wrote: Tue Apr 06, 2021 8:58 am For the years you are missing documentation, have you checked your online IRS.gov account to see what tax forms (Forms 5498, 1099R, 8606)!are available online/by request? Those Forms support your Roth IRA basis tracking.
IRS.gov got me closer! It only has files on the web back to 2011, but now I have all my basis except for 2009.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Here is how the IRS will look at withdrawals from your IRA.

1. The first money that comes out is considered to be the direct contributions no matter when you made them. This includes direct contributions you might make in the future (even after having done backdoor contributions for several years). I know you think that will not happen, but it could - say if you take a sabbatical year or work part time before retirement or something like that.

It also includes the contribution portion of direct rollovers from designated Roth accounts such as Roth 401k.

So 10 years at $5k each is $50k in direct contributions (I'm making up numbers for the example). Plus your contributions from the 2014 rollover. When all of your direct contributions (that $50k + $16,930) are sucked out, the next money that comes out is considered to be from....

2. Roth conversions, oldest year first. It appears there are not any conversions so far so your first one will be your 2021 backdoor Roth.

If there is any taxable portion to that Roth conversion, the taxable portion comes out first (with 10% penalty if the 5 year conversion clock is not finished) before the part that was not taxable. Life is simpler if there there is no taxable portion (you don't have to keep up with the conversion clocks).

4. Roth conversions, next oldest year.....etc.

5. When all the direct contributions, rollovers, and conversions are sucked out, the only thing left is the earnings. This earnings bucket includes the earnings that accrued in your Roth 401k before the rollover in 2014.


So If you have to take money out early, you can't tell the IRS "I know I made a direct contribution in years ___, ___, and ___ and this represents that money." They are going to track it in the way I said above.

So if you are not sure of the first say $15k of direct contributions, just take out no more than $15k less than you think you might be entitled to.

I hope that made sense.
Last edited by retiredjg on Wed Apr 07, 2021 7:49 am, edited 1 time in total.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

retiredjg wrote: Tue Apr 06, 2021 10:48 am
So if you are not sure of the first say $15k of direct contributions, just take out no more than $15k less than you think you might be entitled to.

I hope that made sense.
It does make sense to me. It sounds to me like if I call the IRS number to try to get my 2009 data, and am unable to, I can basically give up a max of $5,000 of basis from that year, and use my new tracking sheet and tax documents from 2007-present/future to withdraw my basis from all years except for 2009, then rollovers, conversions etc in the manner and order you described. Thanks so much!

If $5,000 in basis from 2009 makes or breaks an early retirement in 20-25 years I probably don’t have enough cushion.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

I think you have the right idea. :D
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neurosphere
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by neurosphere »

retiredjg wrote: Tue Apr 06, 2021 10:48 am Here is how the IRS will look at withdrawals from your IRA.
[Not saying anything new here, just saying the same things in a different way...]

One way to look at it visually, assign a value to each row:

Code: Select all

A: all prior direct/regular roth contributions (for all years, just lump them together)
    B: Taxable portion of 1998 rollover/conversions
C: Non-taxable portion of 1998 rollover/conversions
    B: Taxable portion of 1999 rollover/conversions
C: Non-taxable portion of 1999 rollover/conversions
    B: Taxable portion of 2000 rollover/conversions
C: Non-taxable portion of 2000 rollover/conversions
    B: Taxable portion of 2001 rollover/conversions
C: Non-taxable portion of 2001 rollover/conversions
.
.
    B: Taxable portion of last year's rollover/conversions
C: Non-taxable portion of last year's rollover/conversions
Then, whenever you have a Roth withdrawal prior to age 60 for which there is otherwise no exception, you go down the line, in order, and "take" the amount from each row that eventually adds up to the withdrawal.

All of row "A" comes out tax free, no penalties.
Anything taken from a row labeled "B" is [edited] tax/penalty free*.
Anything from a row labelled "C" is tax/penalty free*.
*HOWEVER, if you take from a "B" row for any year within 5 years of the current year, there is an additional 10% penalty.

And once you get to the bottom of the list, all that's left in the Roth IRA is earnings.
Last edited by neurosphere on Tue Apr 06, 2021 5:05 pm, edited 1 time in total.
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retiredjg
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Great idea, but suggest a change.

Row B is not taxable income - you already paid taxes on it when you did the conversion. It will not be taxed again. It is, however, subject to the 10% penalty if the 5 tax year conversion clock is not finished running.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by neurosphere »

retiredjg wrote: Tue Apr 06, 2021 4:41 pm Great idea, but suggest a change.

Row B is not taxable income - you already paid taxes on it when you did the conversion. It will not be taxed again. It is, however, subject to the 10% penalty if the 5 tax year conversion clock is not finished running.
FIXED! (thanks!) I got turned around somewhere in writing/simplifying/formatting.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

neurosphere wrote: Tue Apr 06, 2021 5:07 pm
retiredjg wrote: Tue Apr 06, 2021 4:41 pm Great idea, but suggest a change.

Row B is not taxable income - you already paid taxes on it when you did the conversion. It will not be taxed again. It is, however, subject to the 10% penalty if the 5 tax year conversion clock is not finished running.
FIXED! (thanks!) I got turned around somewhere in writing/simplifying/formatting.
Sorry guys, now I hate belaboring this. Please see this image from my 2014 Rollover of Roth 401K basis and earnings. Note, I only rolled Roth to Roth IRA and kept my traditional 401K funds at that employers plan.

The spreadsheet a few posts up seems to indicate that after all direct contribution basis is exhausted, I will have to with draw the “Taxable Portion” of this conversion (2014) before I get to my next conversion non-taxable portion (which should be 100% of my 2021 Backdoor as well as probably all future additions to this account, if I do the contributions and conversions as quickly as tutorials seems to indicate I can).

So I will go, in an early retirement scenario, all my current direct Roth contribution basis, and then box 2A “taxable amount” $14K shown in this image, then the $16,930 in box 5 and then go to 2021 and beyond from Backdoor conversion additions?

Or does the part this form calls “Taxable portion” really mean “Earnings” which is what it is, and just the terminology on the form is different from the terminology you are using?

That “taxable amount” in box 2A, where your spreadsheet says “taxable amount of conversions”, seems like it should be more like 59 1/2 funds for sure as it is earnings.

Image


As an older slightly wiser person, it also seems to me that this form makes it look like an After Tax 401K (with taxable earnings) and not a Roth 401K - which I specifically am sure it was. My Tax account on IRS.gov states, “Direct Rollover of distribution from a designated Roth account to a Roth IRA” from code H.

It seems intuitive that there would be a difference between “Taxable Amount” on a Roth 401K rollover (if I took the money and ran instead of rolling, that amount would be subject to taxes) and the “Taxable Portion” of a non-deductible TIRA conversion, namely the amount of earnings I would be taxed on in current year if I invested and earned money prior to doing the Roth conversion. Does it hinge on the difference between the word, “Amount” vs “Portion”?
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Doc7, this is not a conversion. It is a rollover. It is handled differently.

I think the list I posted above needs a minor revision about rollovers, but I need to do some research first. The contributions to Roth 401k should flow into Roth IRA basis (like direct contributions), but I know I've seen what I wrote published somewhere. I need to figure out the details. It will be tomorrow before I can do that.
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Doc7
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

retiredjg wrote: Tue Apr 06, 2021 6:48 pm Doc7, this is not a conversion. It is a rollover. It is handled differently.

I think the list I posted above needs a minor revision about rollovers, but I need to do some research first. The contributions to Roth 401k should flow into Roth IRA basis (like direct contributions), but I know I've seen what I wrote published somewhere. I need to figure out the details. It will be tomorrow before I can do that.


Thank you! I am glad you are being so patient with me.

I was reading this in the spreadsheet posted above, “Taxable portion of 1998 rollover/conversions” and wondering if my box 2A in that 2014 form, which says “Taxable amount” falls in that category, vs “Earnings” category. However, your post , point number 2, was “contributions only, not earnings” which intuitively is how I would understand this as well. I am thinking “Taxable Amount” on the 1099-R indicates earnings and not the same as “Taxable Portion” that gets withdrawn prior to the contribution portion of a conversion.
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Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Alan S. »

The 1099R posted above is incorrect. Box 2a should be 0. Since code H signifies as direct rollover from a Roth 401k to a Roth IRA, there would never be taxable amount in 2a. Conversely, if this had been a distribution to the participant then 2a would be correct, but Box 7 would then have shown code B with 1 added if an early distribution.

So this is a problem with the 1099R issuer confusing a direct rollover with a distribution to participant.

For Roth IRA accounting purposes, the amount in Box 5 should be added to Roth IRA regular contribution basis.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by retiredjg »

Doc 7, I made a change on the ordering rules I had posted yesterday. I had put rollovers by year and that is not correct for Roth 401k.

Since Alan S. says the 1099 should be blank in box 2a (taxable amount), you might want to check your 2014 taxes just to be sure that $13,999.89 didn't get entered as taxable income....and get taxed. :shock:
Topic Author
Doc7
Posts: 403
Joined: Fri Aug 24, 2007 12:55 pm

Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

retiredjg wrote: Wed Apr 07, 2021 7:59 am Doc 7, I made a change on the ordering rules I had posted yesterday. I had put rollovers by year and that is not correct for Roth 401k.

Since Alan S. says the 1099 should be blank in box 2a (taxable amount), you might want to check your 2014 taxes just to be sure that $13,999.89 didn't get entered as taxable income....and get taxed. :shock:

Thanks!! I am going to copy your post of ordering into my IPS, I might need that in 20 years! This has been a very informative discussion for me. Based on my IRS.gov inputs there was no taxation on that 2A box, but i believe the laptop with that TurboTax file is somewhere in a box and I can load it up, and check.
Topic Author
Doc7
Posts: 403
Joined: Fri Aug 24, 2007 12:55 pm

Re: Are converted Roth IRA Contributions Penalty Free Withdrawal?

Post by Doc7 »

retiredjg wrote: Wed Apr 07, 2021 7:59 am Doc 7, I made a change on the ordering rules I had posted yesterday. I had put rollovers by year and that is not correct for Roth 401k.

Since Alan S. says the 1099 should be blank in box 2a (taxable amount), you might want to check your 2014 taxes just to be sure that $13,999.89 didn't get entered as taxable income....and get taxed. :shock:
Either the form I found in my filing cabinet is a duplicate of a different form, or back in 2014 I was wise enough to otherwise know, but I did put "0" in the 2A Taxable amount field in my 2014 TurboTax entry interview. Whew!
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