[Roth IRA withdrawal - How does the pro-rata rule impact me?]

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qast3391
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[Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

[Moved into a new thread from: Early withdrawal - how does Roth IRA work? --admin LadyGeek]

Hello

I have a question about a very specific situation but was not sure where to post it. I will also seek advice from a CPA
I have a roth ira that <5 years old, the money was put in from a multiple retirements (which I had contributed to in various years and had earnings) that was done through a backdoor roth ira conversion and from post tax roth traditional ira money that was converted into the roth ira. All that money is now in my roth ira. I have had 50% earnings over the past 3 years. I want to withdraw my contributions from the roth IRA. I never had an initial roth ira to begin with to which I contribute money so this is all roll over money with pretax and post tax sources.

If I withdraw the amount that I converted over only would I only have to pay a 10% penalty, how does the pro-rata rule apply
Per the IRS website
https://www.irs.gov/retirement-plans/re ... tributions

"If you take a distribution from your designated Roth account before the end of the 5-taxable-year period, it is a nonqualified distribution. You must include the earnings portion of the nonqualified distribution in gross income. However, the basis (or contributions) portion of the nonqualified distribution is not included in gross income. The basis portion of the distribution is determined by multiplying the amount of the nonqualified distribution by the ratio of designated Roth contributions to the total designated Roth account balance. For example, if a nonqualified distribution of $5,000 is made from your designated Roth account when the account consists of $9,400 of designated Roth contributions and $600 of earnings, the distribution consists of $4,700 of designated Roth contributions (that are not includible in your gross income) and $300 of earnings (that are includible in your gross income)."

I really don't understand this, say I have 200K in backdoor conversions (pretax dollars) and 18K post tax dollars that was converted to a roth IRA and now I have 350k in the roth IRA(including earnings of 132K)

Thank you so for the confusion but this might explain it better.
docco
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by docco »

A “designated Roth account” is not the same thing as a Roth IRA. It refers to a Roth 401k or other type of employer-based plan.

When you withdraw from a Roth IRA, you track your basis using Form 8606, and that is how you separate out the contributions from the conversions and earnings. (A “designated Roth account” or a Roth 401k does not have that feature.)
Silk McCue
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by Silk McCue »

Please verify that you haven't had any Roth IRA for more that 5 years. From what you wrote it certainly appears that you do.

If you rolled over any funds to a Roth IRA or performed a Backdoor Roth 5 or more years ago you meet the 5 year rule. The 5 year rule doesn't only start with a direct contribution to a Roth.

Cheers
HomeStretch
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by HomeStretch »

Are you < age 59-1/2?
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

Welcome to the forum. :happy

We need to get some things straight before answering your questions.

Apparently, you have Roth IRA that comes from 2 different sources.

The first contribution to Roth IRA was less than 5 years ago.
1. the money was put in from a multiple retirements (which I had contributed to in various years and had earnings) that was done through a backdoor roth ira conversion
I think you are mis-using the term "backdoor Roth IRA conversion" here. Were these all from Roth 401k/403b/457b or something else? How did the money get from "multiple retirements" to Roth IRA?

2) and from post tax roth traditional ira money that was converted into the roth ira.
There is no such thing as "post tax roth traditional IRA money". Do you mean non-deductible contributions to traditional IRA?

All that money is now in my roth ira. I have had 50% earnings over the past 3 years. I want to withdraw my contributions from the roth IRA. I never had an initial roth ira to begin with to which I contribute money so this is all roll over money with pretax and post tax sources.
How old are you today? When (what year) did the first dollars hit the Roth IRA?

If I withdraw the amount that I converted over only would I only have to pay a 10% penalty, how does the pro-rata rule apply
We will get to that.
I really don't understand this, say I have 200K in backdoor conversions (pretax dollars) and 18K post tax dollars that was converted to a roth IRA and now I have 350k in the roth IRA(including earnings of 132K)
We will get to that too. It can be pretty complex. :happy
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

PS. It does not appear to me the "pro-rata" rule is going to apply at all. That applies to IRA conversions, not withdrawals from Roth IRA.
FactualFran
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by FactualFran »

The pro-rata rule does not apply to distributions from a Roth IRA. It applies to distributions from a traditional (or SEP or Simple) IRA when a traditional IRA has had non-deductible contributions made to it. A Roth conversion from a traditional IRA is taxed the same as a distribution from a traditional IRA.

What may apply when taking a distribution from a Roth IRA are income tax and/or a 10% early-withdrawal penalty. Details are in the Additional Tax or Early Distributions section of IRS Publication 590-B Distributions from Individual Retirement Arrangements (IRAs).
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qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

Thank you. These are great answers to my question.
So I do have a designated Roth account and a Roth IRA

1) The designated Roth Account is a Roth 401k employer sponsored plan that has after tax contributions and roth contributions. Every few weeks I convert the aftertax money to the roth contributions.

If I withdraw from here there then I assume the pro-rata rules applies as indicated above, on what form would I report a nonqualified distribution? I have had the employer sponsored roth 401k for <2 years and they allow a distribution. What are the penalities?

I have 100K in total including earnings.

Is there any unique calculator that can do this for me or a spreadsheet?

2) The roth ira is as follows

<5 years, conversion occurred in 2019
First I did a backdoor conversion from multiple ira and 401k employer plans that were are pretax and not roth. I combined them all into a rollover IRA and rolled that into a roth IRA and paid taxes on the conversion in 2019. The money was in self employed 401k mainly and 401k through employment all pretax and a TSP account that all got rolled over into the rollover IRA and then Roth IRA
I am under <59 1/2
The money hit the roth IRA in 2019 from the roll over conversion from pretax accounts
I had 200K in roll over IRA that was converted to a Roth IRA from various 401k self employed and employer plans all pretax.
I had 18K in a traditional IRA (6K put in each year) that I converted to a Roth IRA (each year converted the same year I put the money into a traditional IRA I converted to the larger roth IRA which had the 200K from the roll over IRA)
I now have 350K in the roth ira including earnings which amount to 132K.

i assume I can take out all the contributions which would amount to 218k and pay only a 10% penalty and keep the rest in there unless I want to pay a 10% penalty and a tax penalty on earnings which i do not want to do.

I am taking a nonqualified distribution. What form do I report this on? Has anyone done this before? I have all my 1099R for reference?

I plan to talk to a tax accountant to file the taxes on this one.

3) Any money in a Roth IRA counts towards your estate tax correct? I am not sure if anyone knows the answer to this but I assume it is yes, if you have over 11.5 million for a single person your estate will pay taxes on it when you die and it will pass to your heirs once you paid taxes on it?

Thank you
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

I'm not sure you can get to any of this money at this point (without penalty). Need to look at it tomorrow over coffee.

You have never made a direct contribution to Roth IRA, correct?

As for your current 401k plan, your Roth 401k contributions are not available while you work there. They cannot give it to you except for hardship and then only if the plan allows it. Is there a hardship and will they allow hardship withdrawals?

It is possible that your in-plan Roth rollovers are available. An in-plan Roth rollover would be a rollover from your after-tax account to Roth 401k. That money is accounted for separately from your Roth 401k contributions. Some plans will let you have it while you still work there. Find out from your plan tomorrow.

I'm afraid to give you a real answer, we will need to know how and when every dollar got into your Roth IRA. Different rules apply to different sources of money.

This is a complex situation. I'll look at it again in the morning.
docco
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by docco »

I'm sure @retiredjg will provide a much more detailed response, but a few things to know:

1. When you rolled over the Roth 401k to Roth IRA, you should have received a 1099-R. That form is critical to determining your basis in the Roth. The contribution amount listed on that 1099-R is treated exactly like a non-converted direct contribution to the Roth IRA. In other words, that amount can be taken out without 10% penalty and without any taxes.

(Edit: I thought you rolled over the Roth 401k to a Roth IRA. In re-reading it, it looks like it's still in the Roth 401k? If your plan allows for in-service distribution of the Roth 401k to a Roth IRA, that's your best bet. More typically though, employer plans don't tend to allow in-service distribution of the Roth 401k, but rather do allow it for the after-tax 401k, which of course are two completely different things. The latter is called the mega backdoor Roth, and if the in-service distribution option is available to you, I'd recommend that any future after tax 401k contributions be rolled directly into the Roth IRA rather than the Roth 401k. Unless, of course, you intend to leave the employer soon. If you leave the employer, you should be able to roll over the Roth 401k into the Roth IRA easily and then follow #1 above that I mentioned.)

2. As for the rest of your rollover IRA --> Roth IRA conversions, the entire amount is considered taxable conversion in the sense that they each have a 5 year conversion clock that began in 2019 in your case. To withdraw this, you would need to track each conversion's 5 year period and pay the 10% penalty on any converted amount that has not aged 5 years (assuming non-qualified distribution as you mentioned).

In other words, any rollover from your Roth 401k to a Roth IRA can have a 'basis' amount and an 'earnings' amount. Any conversion from your traditional/rollover IRA will be treated as either 'taxable conversion' or 'nontaxable conversion.' Keep good mental note of these terms as they are crucial to understanding how distributions from your Roth IRA will be treated.
Topic Author
qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

Hello

to be clear I understand that I will have to pay the 10% penalty on the removal of money from the roth ira.

1) for the roth 401k I did not roll any of that money into the roth ira. I want to take that as a distribution, apparently it is allow by the plan but if it is too much of a tax headache I won't do it, the roth 401k consists of two parts roth 401k (post tax money contributions (employer)and roth 401k contributions (employee). I usually do an in person conversion every few weeks from post tax money to inplan roth 401k). This likely has a pro rata rule, ,they warned me about. Apparently the plan allows me to take a one time distribution qualified and unqualified.

2) I only plan to remove 218K from the roth IRA, this is the 218k from the backdoor roth conversion from the traditional iras I mentioned above to the roth and the other self employment 401ks that I rolled over into the roth. I understand this is a nonqualified distribution and I will take a 10% penalty to be clear.

Thank you again for all your help.
Alan S.
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by Alan S. »

qast3391 wrote: Sun Aug 22, 2021 11:33 pm Hello

to be clear I understand that I will have to pay the 10% penalty on the removal of money from the roth ira.

1) for the roth 401k I did not roll any of that money into the roth ira. I want to take that as a distribution, apparently it is allow by the plan but if it is too much of a tax headache I won't do it, the roth 401k consists of two parts roth 401k (post tax money contributions (employer)and roth 401k contributions (employee). I usually do an in person conversion every few weeks from post tax money to inplan roth 401k). This likely has a pro rata rule, ,they warned me about. Apparently the plan allows me to take a one time distribution qualified and unqualified.

When you take a distribution from a Roth 401k, your basis is pro rated with any earnings that your Roth 401k has generated. The amount of earnings will be subject to tax and penalty. You also have been making non Roth after tax contributions and then doing IRRs (In Plan Roth Rollovers). These IRRs should have been non taxable except for the small amount of earnings generated in the after tax sub account before the IRRs is done. The plan will distribute from your Roth 401k elective deferrals and your IRRs pro rata. Since the IRRs were mostly non taxable, there will be a very small 10% penalty for the taxable amount of your IRRs, which would show on your past 1099R forms for the IRRs. Therefore, a rough estimate of the tax cost for your Roth 401k distribution can be determined by determining what portion of your balance is gains. That %*10%*distribution amount should be your penalty. Am ignoring the taxable portion of your IRRs which should be very small.

However, if you ever did an IRR from the pre tax portion of your 401k, you would owe the 10% penalty on the portion of the pre tax IRRs that were distributed. Note that these rules are not as favorable as taking a Roth IRA distribution under the Roth IRA ordering rules where earnings come out last.


2) I only plan to remove 218K from the roth IRA, this is the 218k from the backdoor roth conversion from the traditional iras I mentioned above to the roth and the other self employment 401ks that I rolled over into the roth. I understand this is a nonqualified distribution and I will take a 10% penalty to be clear.

For the portion of this Roth IRA distribution that represents non taxable conversions due to having made non deductible TIRA contributions, the penalty will not apply. It only applies to the taxable portion of conversions. The self employment 401ks you rolled to your Roth were probably 100% taxable, and if so the penalty would apply to that money. Your Roth IRA conversions come out in order of the oldest first. So you would have to determine how much you rolled in each by the year and how much of those conversions and rollovers were taxable before you hit 218k.

Thank you again for all your help.
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

quast3391, I understand some parts of your situation differently from Alan S. Let's start with the Roth IRA which I think Alan S and I interpret pretty much the same way.

YOur Roth IRA consists of:
  • 1. no direct contributions ever

    2. 18k in non-deductible contributions to IRA ( although one post says these were pre-tax instead of non-deductible) which were converted to Roth IRA in 2019 (although one post says these conversions were in 2 or 3 different years)

    3. 200k of pre-tax contributions to multiple retirement work plans which were converted to Roth IRA in 2019

    4. earnings which are currently about $132k
You are less than 59.5 and the Roth IRA is not yet 5 years old.

You want to take $218k out of this Roth IRA. $200k of this withdrawal will trigger a 10% penalty but no tax.

The other $18k - I don't know because of the contradictions in your posts. If these were non-deductible contributions and they were (or will be) documented on Form 8606 and there were no earnings between the contribution and the Roth conversion...there should be no penalty on this $18k.

You ask what form this goes on - Form 8606 Part III. There is a worksheet in the form instructions. You fill in the worksheet showing the contributions. Then fill out the form from the worksheet.
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

The 401k is where I have a different interpretation of the situation from Alan S. I believe this plan is at your current employer, not a past employer.

The 401k consists of:

1. Roth 401k contributions - my understanding is that this money is not eligible for distribution unless there is a hardship and the plan allows hardship distributions. If you are allowed to take some of this money, it will be pro-rated with the earnings (#2 below). There will be tax on the earnings part and a 10% penalty on the earnings part (same as Alan said, but I'm assuming you cannot get to this money at all since you did not answer when asked about a hardship withdrawal).

2. Earnings of $100k - my understanding is that this money is not eligible for distribution unless there is a hardship and the plan allows hardship distributions

3. In-plan Roth rollovers from your after tax account and maybe from the employer match - this money is eligible for distribution if the plan allows it (which apparently it does). I defer to Alan on this.

You asked about what form....your plan will determine what you can take and how much is taxable. They will give you and the IRS this information on a 1099 form. You enter the 1099 form on your taxes just like any other 1099 form.
Topic Author
qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

I want to just make clear that the Roth IRA is not subject to the pro rata rules. I have decided leave the Roth 401k alone it is too complicated and messy to get money out of there.

I got this from my tax software so I just want to make sure what I am hearing is correct

Support - 08/23/2021 5:55 PM MDT
Hello,

If you go to the paragraph on the link you sent with the heading "Since I make designated Roth Contributions from after-tax income, can I make tax-fee withdrawals from my designated Roth account at any time" you can see that the last sentence states that the pro rata rule still applies even though this is a Roth IRA.

You cannot withdrawal early from an IRA account without facing penalties of some kind. If you have entered all of the 1099-rs accurately for this year in our system, then the penalties applied are correct unless you have one of the exceptions from the link Walter sent you.

If you have anymore questions about our software, feel free to contact us!
Best Regards,
Scott-Customer Support


When you take a distribution from your Roth IRA, you'll receive a 1099-R reporting the distribution. The 1099-R will list the taxable amount of your distribution along with other important information.

Generally speaking, if you make a withdrawal from your IRA before you reach the age of 59 1/2, you will be subject to an early withdrawal penalty on the amount. This penalty will be calculated based on the amount added to your income.

To see if an exception applies to the 10% penalty in your case, check the IRS website here:
https://www.irs.gov/retirement-plans/pl ... tributions

Generally, if you make an early withdrawal, the entire withdrawal amount will be added to your income.

The 'earned' portion of your distribution is the amount of money your Roth IRA 'accumulates' after you have made contributions to it. The 'designated contributions' amount is simply the amount levered from contributions you made to your IRA.

How much of any given distribution is considered 'Designated Contributions' and how much is considered 'earnings' is calculated by multiplying the amount of the nonqualified distribution by the ratio of designated Roth contributions to the total designated Roth account balance.
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

Not even sure where to begin. Maybe Alan can make some sense of this, but I don't think I can.

The way I understand it, a "designated Roth account" is a Roth account in a 401k/403b/457 plan. It is not the same thing as a Roth IRA. Withdrawal rules for designated Roth accounts are different from withdrawal rules for Roth IRA.

So, this sentence...
  • "If you go to the paragraph on the link you sent with the heading "Since I make designated Roth Contributions from after-tax income, can I make tax-fee withdrawals from my designated Roth account at any time" you can see that the last sentence states that the pro rata rule still applies even though this is a Roth IRA."
...seems to be talking about a designated Roth account in one place (for example Roth 401k) and a Roth IRA in another place.

Just to clarify, if you withdraw from a designated Roth account before age 59.5, the contributions and the earnings are pro-rated. If you withdraw from a Roth IRA before age 59.5, the contributions and earnings are not pro-rated.

If you roll the designated Roth account to Roth IRA, Roth IRA rules then apply to all of it. However, this will not apply to you since you are still working for this employer and therefore are not allowed to do that rollover.



There are numerous other things in your post (which all appears to have come from someone associated with your tax-software) which seem to be inaccurate. It appears to me, the writer is confusing the terms "designated Roth" and Roth IRA contribution, and confusing tIRA rules with Roth IRA rules. It is also possible the writer thinks a 401k is some kind of IRA or just says "IRA" accidentally....a lot.

Like I said at the top, maybe Alan can make some sense of what you posted.
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

Here's a link from the IRS that might help a little.

https://www.irs.gov/retirement-plans/te ... th-account
HomeStretch
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by HomeStretch »

OP, receiving accurate answers to your questions from the forum/a CPA/tax software rep starts with you providing a clear, concise and accurate explanation of (1) the components of your Roth IRA and 401k balances, (2) when the contributions and conversions were made, (3) the date of first contribution to your initial Roth IRA and (4) your age.

Take a look at retiredjg’s two posts that compile that information (to the extent possible with the information you have provided so far). Verify and complete that information. Until that information is provided/clarified, you aren’t going to receive accurate answers regarding taxes/penalties on your proposed distribution(s).

Do you have another source of funds to take withdrawals from so you don’t need to withdraw now from your RothIRA/401k?
Topic Author
qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

Hello

I want to thank everyone who has answered my questions.
This has been great advice.
I did call two tax accountants up and they both confirmed in a roth IRA no pro rata rules and 10% penalty
I will leave the roth 401k alone.

Just to clarify in 2018 I did a backdoor conversion of 189K from pretax 401k and TSP account to a ROTH IRA
I then from 2019 to 2021 did a total of three 6K traditional IRA conversions to ROTH IRA.
i also did a 4K SEP to the same Roth account conversion in 2021
I did a 11K 401k (not ROTH) to the same Roth account conversion in 2020

I have a total of 189+18+4+11=222 contributions that I plan to remove for which I assume I will be assessed a penalty of 10% so if I take out 220 it would 22K penalty and 198 would be cash that I would be able to take out. With the remainder 132K would be earnings and left in my Roth IRA account +100K in my Roth 401k (which I do not plan to touch at all) based upon the complex tax rules.
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

qast3391 wrote: Sat Aug 28, 2021 3:38 am Just to clarify in 2018 I did a backdoor Roth conversion of 189K from pretax 401k and TSP account to a ROTH IRA
I then from 2019 to 2021 did a total of three 6K traditional IRA conversions to ROTH IRA.
i also did a 4K SEP to the same Roth account conversion in 2021
I did a 11K 401k (not ROTH) to the same Roth account conversion in 2020
It appears that the 3 $6k conversions were probably backdoor Roth process contributions (non-deductible contribution followed by Roth conversion). However, since the 5 tax year clock has not exprired on them, there will be a penalty if you take out that money.
I have a total of 189+18+4+11=222 contributions that I plan to remove for which I assume I will be assessed a penalty of 10%
I agree with your total. You will have to figure out how to document this on Form 8606 on your taxes.Use the worksheet in the instructions.
... so if I take out 220 it would 22K penalty and 198 would be cash that I would be able to take out.
You will take out the entire amount. If you choose to hold some of it in savings to pay the penalty with that is fine.
Silk McCue
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by Silk McCue »

retiredjg wrote: Sat Aug 28, 2021 7:04 am
... so if I take out 220 it would 22K penalty and 198 would be cash that I would be able to take out.
You will take out the entire amount. If you choose to hold some of it in savings to pay the penalty with that is fine.
retiredjg. Since the $189k conversion was in 2018 if they waited until January 2022 to withdraw would the penalty be gone for that amount as that will be 5 calendar years later?

Cheers
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

Good thinking...but for Roth conversions any time in 2018, the clock will have ended by January 1, 2023.

(The 5 tax years in this case will be 18, 19, 20, 21, and 22.)
Topic Author
qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

Thank you everyone for the advice.
Final question I had was if I put money in a sep ira this year and converted it to a roth this year and then took the contributions out there is only the 10% penalty correct?


Thank you
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

I think that would be correct. Well, you would have to pay tax on the Roth conversion and then the additional 10% penalty for taking the money out too soon.
newacct
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by newacct »

retiredjg wrote: Sat Aug 28, 2021 7:04 am It appears that the 3 $6k conversions were probably backdoor Roth process contributions (non-deductible contribution followed by Roth conversion). However, since the 5 tax year clock has not exprired on them, there will be a penalty if you take out that money.
The penalty would only be on the portion of the conversion that was taxable. Typically "backdoor Roth IRA contributions" involve a completely or almost completely non-taxable conversion, and so withdrawing it within 5 years should not have any penalty.
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

You are correct. If the contributions were non-deductible, there would only be a penalty on the part (if any) that was taxable at the time of the Roth conversions. However, one cannot get to the part that has no penalty without taking out the part that does have penalty.

I am very unclear on whether those were actually non-deductible contributions or not. The early posts seem to be contradictory (at least to me) and the last place they are mentioned just says 3 conversions. We don't know if the contributions were non-deductible or not.
Topic Author
qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

Hello

What if I took money from the roth 401K rolled it over into a roth IRA
I then took the money out of the roth IRA and incur the 10% penalty?
Is that allow all in the same calendar year?

Thank you
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

qast3391 wrote: Sun Oct 10, 2021 7:57 am Hello

What if I took money from the roth 401K rolled it over into a roth IRA
I then took the money out of the roth IRA and incur the 10% penalty?
Is that allow all in the same calendar year?

Thank you
Is this a current 401k account or from a previous employer?

Your Roth 401k elective deferral contributions cannot be rolled out of your 401k while you work there while you are under 59.5 (and only then if the plan allows it). There may be an exception allowed for hardships - up to your plan.

Your in-plan Roth rollovers (after-tax account rolled over to Roth 401k) might be able to be removed from your 401k - I think this is one of the things the plan can allow or not allow.

Have you asked them yet?
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

Further answer....

You have asked generically about Roth 401k, but in reality you have two different kinds of Roth 401k because of the ways money has gotten into your Roth 401k account(s).

I don't think the custodian has to actually keep them in separate accounts, but I understand that must at least be separate accounting. I'll talk as if they are actually separate accounts.

On the one hand, you have a Roth 401k account that contains your Roth 401k contributions and the earnings from those contributions. This is the money that I believe you do not have access to (except hardship) because you still work for that employer.

On the other hand, you have a Roth 401k account that contains your IRRs (in-plan Roth rollovers) and the earnings from those IRRs that have occurred while the money is sitting in Roth 401k. I know you have IRRs from after-tax account contributions and I am unsure if you have IRRs from any other source (such as your employer contributions).

If you are allowed to roll this second "Roth 401k account" (from the IRRs) out of your 401k into Roth IRA, the IRRs will roll into Roth IRA basis (available now) and the earnings from the IRRS which have accrued inside Roth 401k will roll into the earnings bucket in your Roth IRA. This is how I understand it anyway.


Since it appears that both sides of your Roth 401k together amount to about $100k and some of that money is not even available, this may not be as much money as it seems you are looking for.
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qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

I had one other question, this is kind of connected to the original question

I took a withdrawal from my employer sponsored 401k and now I realized i took too much out. I have a roth IRA and apparently part or all of the withdrawal can be put in back into my roth IRA but not back into the employer sponsored 401k within 60 days.
I am curious if I have done roth conversions from the sep ira to the roth ira in the current year can I put part of the overwithdrawal into the roth ira as well. Is there a limit to conversions and withdrawals, where do those rules come into play?
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

I think you can do a 60 day rollover on the extra money.

There is a limit to the number of rollovers you can do - from IRA to IRA and from Roth IRA to Roth IRA - one in a 365 day period. When there is a 401k type plan on either end of the money movement, it does not count as your "one". Also Roth conversions do not count.

A word of caution. You are wheeling and dealing and moving money here and there and this is yet another type of contribution to your Roth IRA that you now need to keep up with. You are complicating things to the point that you may have trouble untangling it later.

It has been difficult to follow and interpret what you have done so far. I don't think you even know what you have done - as evidenced by what appeared to be conflicting statements in your early posts.

Don't do this to yourself. Put money in your retirement accounts and leave it alone. Keep things simple. The more complex you make things the more things there are that can come back to haunt you in the end.
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Eagle33
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by Eagle33 »

You also need to be sure that the firm where your Roth IRA resides is in sync with what you are doing to ensure they code the transactions correctly, or you will be needing to correct it with the IRS which is more complicated.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
Topic Author
qast3391
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

Agreed
After this is done I am putting a lock on the roth IRA and 401k roth accounts so no money goes in and no money goes out. I can put a lock on there that would require me to show up in person. The nearest center from where I live is 300 miles away.

Thank you
retiredjg
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Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by retiredjg »

qast3391 wrote: Sat Oct 16, 2021 1:50 pm Agreed
After this is done I am putting a lock on the roth IRA and 401k roth accounts so no money goes in and no money goes out. I can put a lock on there that would require me to show up in person. The nearest center from where I live is 300 miles away.

Thank you
This is something of a strange statement. I can think of no reason you should not continue to make contributions to Roth IRA or to Roth 401k. I suppose you might be able to lock up an IRA, but I doubt you can do that with a current 401k.

I'm sure you have your reasons.
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qast3391
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Joined: Sun Aug 22, 2021 6:52 am

Re: [Roth IRA withdrawal - How does the pro-rata rule impact me?]

Post by qast3391 »

I just did.
I am not going to roll over any contributions back to my IRA
I will keep contributing to the 401k yearly.
I will not do any roll-overs and I do not plan to take any money out ever again. The tax return this year will be plenty of punishment enough!
It was worth it though in my mind.
Just got to keep working until I am age 60-65 and then I can retire so another 20 years!
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