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Retirement tax questions
When you withdraw (and keep) money from a Roth IRA, you are always deemed to withdraw contributions first, conversions second, and earnings last. For example, suppose your contributions over the years are $50,000, and the value is $75,000. If you withdraw $40,000, it is all contributions, and your remaining balance is $10,000 of contributions and $25,000 of earnings. If you withdrew $60,000, then your withdrawal is $50,000 contributions and $10,000 earnings, and your remaining balance is all earnings. This is important for future withdrawals. then, the tax consequences are:
Under age 59-1/2 | Over age 59-1/2 | |
Withdrawal of contributions | Never taxable | Never taxable |
Withdrawal of conversions*, if the conversion was less than 5 years previous | No income tax, but subject to a 10% penalty for early withdrawal | Not taxable |
Withdrawal of conversions, if the conversion was more than 5 years previous | Not taxable | Not taxable |
Withdrawal of earnings, if it is less than 5 years since you opened your first Roth IRA** | Subject to income tax plus a 10% penalty for early withdrawal | Subject to income tax, but no additional penalty for early withdrawal |
Withdrawal of earnings, if it is more than 5 years since you opened your first Roth IRA | Subject to income tax plus a 10% penalty for early withdrawal | Not taxable |
*Each conversion has a separate 5 year clock
**A Roth account inside a 401k or 403b does not start the 5 year clock for Roth IRAs. IRAs are controlled by different laws than workplace plans.