Roth IRA withdrawals - help me understand

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Wrench
Posts: 1070
Joined: Sun Apr 28, 2019 10:21 am

Roth IRA withdrawals - help me understand

Post by Wrench »

I am confused about Roth IRA withdrawals and what is allowed without taxes and/or penalties. I am over 59.5 years old. Here is an example that illustrates my situation:
1. Convert $10K from tIRA into a Roth IRA (new in 2019) every year from 2019 - 2023 for a total conversion amount of $50K. Current value of account is $70K.
2. Contribute $15K per year into a solo Roth 401K from 2020 - 2024, for a total contribution of $60K. Current value of account is $75K.

Questions:
1. How much can I withdraw without taxes or penalty from my Roth IRA in 2024? Is it $10K from 2019 contribution + earnings on that $10K? If so, how do I calculate the earnings on that 2019 contribution? I have to wait 5 years after each conversion before I can withdraw the principal and earnings from each year's conversion, though I can withdrawal the original conversion amount any time. Is that right? So, the entire account balance would be available tax/penalty free in 2028 (assuming no further conversions)?
2. If I stop contributing to my solo Roth 401k in 2024 and in 2025 roll the entire amount into my Roth IRA to simplify my accounts, how is the 5 year rule applied to that money? Can I take the total rolled over monies out tax-free/penalty free in 2025 or 2026, or do I have to wait 5 years or what? If I don't do the rollover, is the entire solo Roth 401k available for withdrawal in 2024 because it was initiated in 2020 so satisfies the 5 year rule?

Thank you.

Wrench
terran
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Re: Roth IRA withdrawals - help me understand

Post by terran »

Since you're over 59.5 years as long as you've had a balance in any Roth IRA at least 5 years ago (whether from contribution or conversion) all withdrawals are tax and penalty free. Other than the requirement of having a 5 year or greater year old Roth there are no other requirements for you.
RyeBourbon
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Re: Roth IRA withdrawals - help me understand

Post by RyeBourbon »

If you roll the 401k Roth into Roth IRA, you will get the benefit of no penalty or taxes on any withdrawals since your Roth IRA is already qualified. If you leave it in the 401k, it will be qualified on 1/1/2025 (5 years from 1/1/2020).
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Navillus1968
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Re: Roth IRA withdrawals - help me understand

Post by Navillus1968 »

Wrench wrote: Tue Apr 02, 2024 6:57 am I am confused about Roth IRA withdrawals and what is allowed without taxes and/or penalties. I am over 59.5 years old. Here is an example that illustrates my situation:
1. Convert $10K from tIRA into a Roth IRA (new in 2019) every year from 2019 - 2023 for a total conversion amount of $50K. Current value of account is $70K.
2. Contribute $15K per year into a solo Roth 401K from 2020 - 2024, for a total contribution of $60K. Current value of account is $75K.

Questions:
1. How much can I withdraw without taxes or penalty from my Roth IRA in 2024? Is it $10K from 2019 contribution + earnings on that $10K? If so, how do I calculate the earnings on that 2019 contribution? I have to wait 5 years after each conversion before I can withdraw the principal and earnings from each year's conversion, though I can withdrawal the original conversion amount any time. Is that right? So, the entire account balance would be available tax/penalty free in 2028 (assuming no further conversions)?
2. If I stop contributing to my solo Roth 401k in 2024 and in 2025 roll the entire amount into my Roth IRA to simplify my accounts, how is the 5 year rule applied to that money? Can I take the total rolled over monies out tax-free/penalty free in 2025 or 2026, or do I have to wait 5 years or what? If I don't do the rollover, is the entire solo Roth 401k available for withdrawal in 2024 because it was initiated in 2020 so satisfies the 5 year rule?

Thank you.

Wrench
This handy stoplight chart shows your situation- https://www.bogleheads.org/wiki/Roth_IRA#Notes

You're over 59.5 , so look at the right side of the chart. Your Roth IRA satisfies the 5 year rule as of 1 JAN, 2024, so you land in the righthand column- all Roth IRA withdrawals are tax-free & penalty-free.

"Roth 401k funds rolled over to a Roth IRA will always use the five-year holding period associated with the Roth IRA (assuming an account has been established). Any holding time in the 401(k) plan is lost."
https://www.lordabbett.com/en-us/financ ... ion-p.html

This rollover is a boon for you, since your Roth IRA already satisfies the 5 year rule, so all withdrawals of Roth 401k funds become qualified, as RyeBourbon said.
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retiredjg
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Re: Roth IRA withdrawals - help me understand

Post by retiredjg »

Good news. If you first contributed to Roth IRA in 2019, your 5 year clock is done (as of the first of this year). You are over 59.5. These two things together make your Roth IRA "qualified".

You can withdraw any amount you want at any time, no tax and no penalty.
GSBRQ
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Joined: Tue Mar 05, 2024 5:35 pm

Re: Roth IRA withdrawals - help me understand

Post by GSBRQ »

Navillus1968 wrote: Tue Apr 02, 2024 9:32 am
This handy stoplight chart shows your situation- https://www.bogleheads.org/wiki/Roth_IRA#Notes

You're over 59.5 , so look at the right side of the chart. Your Roth IRA satisfies the 5 year rule as of 1 JAN, 2024, so you land in the righthand column- all Roth IRA withdrawals are tax-free & penalty-free.
I’d been wondering about this question myself. Thanks for sharing the chart.
Topic Author
Wrench
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Joined: Sun Apr 28, 2019 10:21 am

Re: Roth IRA withdrawals - help me understand

Post by Wrench »

Thank you all! I have no immediate plans for withdrawal, but it is good to know I could do so from my Roth penalty/tax free if needed. And, that my plan for future rollover from my Roth i401K to my Roth will not impact that situation.

I also found this chart from the IRS here:
https://www.irs.gov/publications/p590b# ... k100089915
that confirms the above, and might help others with the same question:
Image

Apparently in this chart, "contributed to a Roth IRA" can either be a direct monetary contribution, or a conversion.

Wrench
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Wiggums
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Re: Roth IRA withdrawals - help me understand

Post by Wiggums »

Your Roth IRA qualified which means that you can withdraw any amount you want at any time, no tax and no penalty.
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