Roth Earnings Subject to 10% Tax and/or Penalties??

[irunalot]

Has anyone over 59-1/2 and with a Roth account older than 5 years tried to take EARNINGS from their Roth IRA and see if TurboTax calculates a tax or a penalty?  Why I ask:

1) Contributions and conversion dollars are straight forward per IRS pub 590B.  Earnings are not specifically mentioned; I only see the word distribution which can mean any of the three.

2) Everything I see online says if you're over 59-1/2 and your Roth 5-year clock is met, you can take earnings out tax free and penalty free.  But, they don't specify which 5-year clock they're referring to, the age of the account or the timing since the conversion!

3) I use two financial advisors; One advisor says I'm home free because my first Roth account is over 5 years old and I'm over 59-1/2 years old.  The other advisor is adamant - I have to keep track of every Roth conversion because they each have their own 5-year clock for earnings distributions, even though I'm over 59-1/2!

So, I figured I'd make up a phony TurboTax filing and see if TurboTax is programmed to tax me or penalize me for distributing earnings a year after a conversion.  Spare me the grief if someone else has already done this!

Any thoughts are appreciated and apologies for having to answer this multiple times.

[fanfare]

There's a difference between earnings, and allocable earnings on an excess contribution being removed.

the latter are not penalized if you are under 59 1/2.

@irunalot 

[Opus 17]

Are you saying Turbotax has a calculation error?

According to the law, your first advisor is correct.

Briefly, the 10% penalty for early withdrawal never applies over age 59-1/2.  

The general 5 year clock means that earnings are subject to income tax if you withdraw them in less than 5 years, no matter your age.  And they are subject to an additional 10% if under 59-1/2.

The 5-year clock on each conversion means there is a 10% penalty if it is less than 5 years and you are under age 59-1/2.  This is because withdrawals from regular IRAs are subject to the same penalty.  The IRS doesn't want to someone under 59-1/2 to be allowed to do a Roth conversion and pay the income tax, then withdraw and skip the penalty.  But the 10% penalty never applies if you are over age 59-1/2, which means you can ignore the 5 year clock on individual conversions.  

[irunalot]

Wow!  That makes the most sense and it's what I've been debating with my second advisor.  Why penalize a Roth conversion when I can just take it out of a traditional IRA without penalty!!??

No, absolutely not saying TurboTax has a calculation error.  I merely wanted to use TT as a tiebreaker.  I figured TT would be 100% correct.

Thanks for the quick answer.  Much appreciated!

[dmertz]

For a Roth IRA distribution made after age 59½, the IRA custodian will report the distribution on Form 1099-R with code T or code Q in box 7 to indicate that no part of the distribution is subject to an early-distribution penalty.

For distributions made before age 59½, the IRA custodian will used code J to indicate that the taxable part of the distribution is subject to a 10% early-distribution penalty (where the taxable portion of the nonqualified distribution will be calculated on Form 8606 Part III of the tax return.)

[irunalot]

Got it.  Many thanks!!