Question Regarding Five Year Rule for Roth IRA Withdrawals -Alan S. Please Help!

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    Hi all (& Alan S. in particular!),

    I have a question regarding the five year rule for Roth IRA Withdrawals. My wife and I are both 33 years old.

    In November 2012, I converted the following retirement funds from an old job into a single Roth IRA at Fidelity and paid taxes (with outside cash) on the applicable portions:

    Roth 401k = $58,923 (contributions = $48,125)
    Before Tax 401k = $19,760
    Company Match (considered before tax) = $26,869
    Supplemental (considered before tax) = $2,807
    Post the conversion, I held $108,359 (sum of above) in a single Roth IRA.

    In April 2013, I contributed $5,000 to the same Roth IRA, and my wife contributed $5,000 to open a new Roth IRA in her name. Both contributions were made for tax year 2012. At that point we had converted or contributed a total of $118,359 to the two Roth IRA accounts. We have made no other contributions/conversions/withdrawals to either Roth IRA.

    The value of my Roth IRA is currently $334,000, and the value of my wife’s Roth IRA is currently $29,000.

    We would like to withdraw the $118,359 in conversions/contributions tax-free and penalty-free as I believe both the conversions and contributions are considered to be at least five years ago. Can we simply withdrawal up to $118,359 tax-free and penalty-free, or do I need to worry about the breakdown of the $108,359 in terms of contributions/earnings prior to the November 2012 conversion?

    Also, if we’re able to withdrawal the full $118,359 tax-free and penalty-free, can I simply withdrawal those funds from my Roth IRA, or do I have to withdrawal $5,000 from my wife’s Roth IRA and $113,359 from my Roth IRA?

    I’ve posted this same question on the Bogleheads board, and the general consensus seems to be that I can likely withdraw $107,561 tax-free and penalty-free; however the original $10,798 in earnings from the Roth 401k can not be withdrawn tax-free and penalty-free.

    Thanks so much for the help!


    Alan S.

    Your Roth IRA accounting must be kept separate for each of your Roth IRAs. I wonder if your #s are correct, because the SP 500 index has doubled since Nov, 2012, but your Roth IRA has tripled. That means you have doubled the SP 500 return, which is possible but probably unlikely.

    Going by your contribution info, you can withdraw 113,359 from your Roth and 5000 from your wife’s without tax or penalty.

    As for the breakdown, you DO need to keep accurate records of your Roth IRA basis in order to correctly report the distributions on Form 8606. Each spouse would file an 8606 showing the amount of regular Roth contribution basis and the amount of conversion basis on separate lines. Your regular contribution basis is 63,923 and your wife’s is 5000. Your conversion basis is 49,436. The remaining balance is apparently all gains which would come out last subject to tax and penalty.


    Thanks Alan. I understand your uncertainty regarding my returns, but a few concentrated positions in NFLX & TSLA helped generate the outperformance.

    Regarding your answer & to confirm, the $10,798 in earnings from the Roth 401k that were rolled into the Roth IRA can now be withdrawn tax-free and penalty-free since I have passed the five year period? The only reason I’m asking for more clarity is because other users are posting commentary from you in the past on Bogleheads that they interpret as implying otherwise:

    “When a Roth 401k balance is rolled into a Roth IRA, the new balance in the Roth IRA shifts to Roth IRA accounting. A Roth IRA distribution then follows the Roth IRA ordering rules you are probably familiar with.

    The amount of elective deferrals to the Roth 401k are shown in Box 5 of the 1099R for the Roth 401k rollover. That amount is added to your Roth IRA regular distribution balance and can come out tax and penalty free anytime. Earnings in the Roth 401k are treated as Roth IRA earnings, and they come out last subject to tax and penalty.”

    It appears to me you can take (penalty free) $102,561* out of His Roth IRA and she can take $5,000 out of Her Roth IRA.

    The earnings that occurred in the Roth 401k prior to rollover and the earnings that have occurred in His and Her Roth IRAs since the rollover are not available without tax and 10% penalty.

    *Roth 401k = $48,125
    Before Tax 401k = $19,760
    Company Match = $26,869
    Supplemental = $2,807
    Direct contribution $5,000

    + Direct contribution to Her Roth IRA of $5,000

    Thanks again for your time and help. I really appreciate it.


    Alan S.

    You are correct, I misread your Roth 401k contribution amount to be 58,923 when it clearly is 48,125, which should be shown in Box 5 of your H coded 1099R for the direct rollover. Therefore, the 102,561 is correct for your Roth tax and penalty free distributions. And your regular contribution basis in your Roth IRA is 53,125. Sorry for the error.

    I assumed the supplemental amount is an additional co match of some kind, was taxed when you rolled it over to a Roth IRA, and is therefore included in your Roth IRA conversion basis now.

    Sorry for the error.

    Kaye Thomas


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