The often repeated online Roth IRA withdrawal statement of "you can always take out the contributions to a Roth IRA penalty and tax free" is never quite answered in the way I have made contributions to a Roth IRA. This post and questions goes deeper than what is typically found online and gets into the Mega Back Door Roth IRA concept.
Going one step further in this thread about Roth IRA withdrawal and Code J and getting more detailed about the SOURCE of the contributions funds in the Roth IRA. Typically, Roth IRA contributions done by one sending after tax dollars (from your checking about) to a custodian and the tracking of the contributions is straighforward. But, for the Mega Back Door Roth strategy i.e. making after tax contributions to the company 401k and then (at the end of each year) rolling them over to an IRA makes is more compicated. The after tax funds in company 401k were taken out (i.e. rolled over) to:
1) Roth IRA for the after tax contributions i.e. the basis,
2) Traditional IRA for the earnings on the contributions.
No taxes were due on either any of these roll overs because they went into the appropiate IRA (Roth or Traditional). This was done in 2021, 2022, and 2023. I view the funds put into the Roth IRA the same as if I sent the funds directly to the custodian from my checking account - but this is where I may be wrong and am not clear (thus this post).
Now, leaving aside completely the Traditional IRA and focusing on the Roth IRA. For sake of this example, applying an amount to the funds that are after tax contributions (first made to the 401k but due to roll overs now sitting in the Roth IRA) of $50,000. The balance of the Roth IRA is (example again) $55,000. I want to withdraw the "contributions" of my Roth IRA i.e. the $50,000. I think (this is the question I'm trying to confirm) I am able withdraw the $50,000 of the Roth IRA (without tax or penalty), because they are the contributions / basis. The $5,000 earnings needs to stay in the account. The "rub" is that the funds were first in the 401k and then moved to the Roth IRA and I can't find if this makes a difference to the ability to withdraw the contributions tax or penalty free.
Also:
1) I'm not 59 1/2.
2) Not going to use funds for first home
3) Not for death or disability.
Meaning, if I take the $50,000 out of the Roth IRA, it will be a non qualified withdrawal and will get a Code J (I've already gotten this confirmation from the IRA custodian).
Final point, I've had Roth IRAs for well over 5 years and understand the IRS views all of my Roth IRA accounts as one "fund", though I have multiple Roth IRA - the example above was special purpose Roth IRA created for the purpose of doing this mega back door strategy. So, if the 5 year rule applies, that has been met.
In summary, questions are:
1) Is the Roth IRA withrawal of the $50,000 still a PENATLY FREE and TAX FREE withdrawal even though the funds were after tax contributs but originally in the 401k but and now in the Roth IRA?
2) How is a withraw like this reported in Turbotax?
