403B to Roth IRA Coversion

[Andy K]

Hello.

If I covert part of my 403B to a Roth IRA is the 5 year on just the principal initial amount or the principal and interest .  ?

Andy

[Cindy4]

Hi Andy K!

You can always withdraw contributions from a Roth IRA with no penalty at any age.   At age 59½, you can withdraw both contributions and earnings with no penalty, provided that your Roth IRA has been open for at least five tax years.

Here is a link regarding Roth IRAs.

https://turbotax.intuit.com/tax-tips/retirement/boost-your-retirement-savings/L3lryQHVz

Hope this helps!

Cindy

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[Andy K]

The question is could you take principle out before the first 5 years if I am retired

[dmertz]

Being "retired" is not a factor, it depends on your age.  If you are over age 59½, the amount converted can be taken out of the Roth IRA at any time without tax or penalty.  The 5-year conversion clock is only used to determine if taking out the converted funds before age 59½ would result in a recapture of the 10% early-distribution penalty that would have applied if the distribution from the 403(b) had not been rolled over to the Roth IRA.  Early-distribution penalties end at age 59½, so after age 59½ the 5-year conversion clock has no meaning.

[Aimee-O]

Great question Andy!

Well...  let's make sure you are able to make the conversion.  One of two conditions has to be met before you can do so. You must either be over 59 1/2 years of age so you can withdraw your retirement funds penalty-free at will, OR you must no longer be working for the sponsoring employer.

If you are able to make the conversion, the 5 year rule is for earnings only.  You can withdrawal your contributions (principal) at any time and any age without penalty and tax free.  {That's because you paid taxes on the contribution (principal) at the time of conversion.}  If you 59 1/2 or above, you will want to wait the 5 years from the FIRST contribution to withdrawal the earnings tax free.  If you are under 59 1/2 and you withdrawal more than the original contributed (principal) amount, well then not only will you pay taxes on the earnings but also 10% penalties no matter when  you take the withdrawal.  Of course, there are ALWAYS exceptions...  It is the IRS.  😀

Also, remember the year of conversion you will pay tax on that amount at your current tax rate.  So prepare for that at tax time.  


Here's a couple of great articles to reference:
Roth IRA Withdrawal Rules and Penalties 

Roth Account in Your Retirement Plan 

Thank you for your question!  Hopefully, this helps!

[Aimee-O]

Yes!  You can withdrawal your contributions (principal) at any time and any age without penalty and tax free.   

More detail on my other response to your question. 

[Cindy4]

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. 

[Andy K]

Thanks, that was the clarification is was looking for.

What is the best way to handle the  tax (22%)  in converting #30,000?

[Cindy4]

Is that 22% rate what your marginal rate is, or where is that coming from?

[Andy K]

22% is the tax bracket that I am in

[Cindy4]

Can you delay the conversion until you're other income is lower?

[Cindy4]

Or, if you itemize, wait until a year your itemized deductions are higher and reduce your taxable income.

[Andy K]

I possibly can but i'm sure the earnings would be greater than he tax on the initial conversion.

but if I could convert $60,000 to a Roth when I am 65 at a 12% tax rate the cost would be about the same.

A s long as I can take the any amount of the $60,000 contribution as soon as I transfer it

[Cindy4]

Yes, your good to go on that.