Planning to take some money out of roth ira

[ketanco]

Hello,
I am below 59 but I plan to take some money out of my roth ira. I contributed may be $15000 to that in total before, and the rest is earnings. I probably plan to take out around $5000 right now.
As far as I know we can take out up to the money we contributed freely, without any penalty or tax.
But asking just in case, is there a paperwork (tax related etc..) for this now? Or during tax time?

[RickBoglehead]

Yes, you can take out contributions tax free. However, your Roth IRA is the LAST place you want to take funds from since you cannot replace them.

Yes, you will need to complete tax forms as a result.

[Olemiss540]

There will be no paperwork until tax time when you will receive a 1099 for the distribution. Call your IRA custodian and request a return of $5000 in your CONTRIBUTIONS.

[dsmil]

Yes, you'll get a 1099-R form which will list the amount distributed, and you'll fill out an 8606 form with your tax return. On the 8606, you'll write down your distribution amount ($5k from 1099-R) and your basis in Roth IRA contributions ($15k). Since $5k<$15k, you won't be taxed, and you'll now have $10k left in your basis of Roth IRA contributions.

I wouldn't worry much about taking $5k from your Roth IRA like another person mentioned. The Roth can be a fine place to hold some emergency money because earnings aren't taxable and contributions can be withdrawn tax free. Plus, it's not an earth shattering amount of money.

[kaneohe]

https://www.irs.gov/pub/irs-prior/f8606--2018.pdf

You distribution goes on line 19 and gets carried to line 21. Your basis (net contributions) goes on line 22.

[kaneohe]

.............................................................. Call your IRA custodian and request a return of $5000 in your CONTRIBUTIONS.

emphasis probably not necessary for custodian and may confuse them.................they may not know how much came from contributions
(if funds were transferred from another custodian) and probably will not know of contributions held elsewhere. Only owner knows and distributions are treated as contributions out first considering all Roths held as one.

[fru-gal]

I wouldn't worry much about taking $5k from your Roth IRA like another person mentioned. The Roth can be a fine place to hold some emergency money because earnings aren't taxable and contributions can be withdrawn tax free. Plus, it's not an earth shattering amount of money.

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

[retiredjg]

This withdrawal is handled on the back side of Form 8606. Part III. In order to fill it in you need to use a worksheet in the 8606 instructions. It will ask you about your contributions, etc. I have done this by hand, but have not done it with tax software. You may have to do some research.

If you have not done it already, you need to keep a running tally of how and when your money gets into Roth IRA. It can get complicated later on, especially if you start doing back door and mega back door contributions. This 8606 should become part of that record - documenting that you have taken some of your contributions out.

[dsmil]

I wouldn't worry much about taking $5k from your Roth IRA like another person mentioned. The Roth can be a fine place to hold some emergency money because earnings aren't taxable and contributions can be withdrawn tax free. Plus, it's not an earth shattering amount of money.

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

If you aren't already maxing out your Roth IRA (which poster is not), and you contribute $5k to a Roth as part of an emergency fund, and then need to take that $5k out in a few years, what's the problem? You at least got some tax-free earnings for a few years. I've been doing this for years because I haven't been maxing out the Roth, and in the case that I don't need to touch the emergency money, it will sit in the Roth with tax-free earnings. If you have a choice, certainly taking money from taxable is better that a Roth withdrawal of contributions, but not everyone has that choice.

[RickBoglehead]

I wouldn't worry much about taking $5k from your Roth IRA like another person mentioned. The Roth can be a fine place to hold some emergency money because earnings aren't taxable and contributions can be withdrawn tax free. Plus, it's not an earth shattering amount of money.

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

If you aren't already maxing out your Roth IRA (which poster is not), and you contribute $5k to a Roth as part of an emergency fund, and then need to take that $5k out in a few years, what's the problem? You at least got some tax-free earnings for a few years. I've been doing this for years because I haven't been maxing out the Roth, and in the case that I don't need to touch the emergency money, it will sit in the Roth with tax-free earnings.

If it's the last $5k in your emergency fund, sure. But the point is that the Roth IRA should be the last place you go to for money, whether in an emergency or in retirement.

[dsmil]

I wouldn't worry much about taking $5k from your Roth IRA like another person mentioned. The Roth can be a fine place to hold some emergency money because earnings aren't taxable and contributions can be withdrawn tax free. Plus, it's not an earth shattering amount of money.

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

If you aren't already maxing out your Roth IRA (which poster is not), and you contribute $5k to a Roth as part of an emergency fund, and then need to take that $5k out in a few years, what's the problem? You at least got some tax-free earnings for a few years. I've been doing this for years because I haven't been maxing out the Roth, and in the case that I don't need to touch the emergency money, it will sit in the Roth with tax-free earnings.

If it's the last $5k in your emergency fund, sure. But the point is that the Roth IRA should be the last place you go to for money, whether in an emergency or in retirement.

Agreed. I'm assuming that they really don't have another easy source of funds and have to use their Roth.

[Elysium]

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

Money in Roth is free of taxes on both contributions and earnings on qualified withdrawals.

[fru-gal]

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

Money in Roth is free of taxes on both contributions and earnings on qualified withdrawals.

Yes, although I think there is some five year rule about contributions, which I have not looked into because the last time I did anything like that was more than five years ago.

[Elysium]

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

Money in Roth is free of taxes on both contributions and earnings on qualified withdrawals.

Yes, although I think there is some five year rule about contributions, which I have not looked into because the last time I did anything like that was more than five years ago.

That is why I said qualified withdrawals. The five year rule applies to only earnings, as contributions are penalty free anytime. Five year rules states the Roth IRA account is established for at least five years before you can withdraw earnings penalty free, and of course the other rule is you have to be 59&1/2. If both are met there are no taxes or penalties on either contributions or earnings.

[shess]

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

Money in Roth is free of taxes on both contributions and earnings on qualified withdrawals.

Yes, although I think there is some five year rule about contributions, which I have not looked into because the last time I did anything like that was more than five years ago.

Most likely you're thinking of the 5-year rule on conversions, which means you pay 10% penalty when withdrawing converted money which has not been seasoned for five years, if you're under 59-1/2 (and probably nine other caveats). I've never seen anything applying this to contributions - but note that backdoor Roth is a contribution to a traditional IRA followed by a conversion to a Roth, so it applies there.

[Elysium]

I agree with the other person. Money in a Roth earns untaxable earnings until it is removed, which can be decades later. It's the last place I'd remove money from or treat as an emergency fund.

Money in Roth is free of taxes on both contributions and earnings on qualified withdrawals.

Yes, although I think there is some five year rule about contributions, which I have not looked into because the last time I did anything like that was more than five years ago.

Most likely you're thinking of the 5-year rule on conversions, which means you pay 10% penalty when withdrawing converted money which has not been seasoned for five years, if you're under 59-1/2 (and probably nine other caveats). I've never seen anything applying this to contributions - but note that backdoor Roth is a contribution to a traditional IRA followed by a conversion to a Roth, so it applies there.

Conversion from Traditional IRA to Roth including backdoor Roth contribution must have to be subjected to five year rule. Otherwise, that would become a loophole where you simply convert a Traditional IRA to Roth, pay taxes, and take out the distributions, by passing the rules for taking out money from Traditional IRA before 59&1/2 successfully. This doesn't apply once you are 59&1/2 obviously.

[Olemiss540]

.............................................................. Call your IRA custodian and request a return of $5000 in your CONTRIBUTIONS.

emphasis probably not necessary for custodian and may confuse them.................they may not know how much came from contributions
(if funds were transferred from another custodian) and probably will not know of contributions held elsewhere. Only owner knows and distributions are treated as contributions out first considering all Roths held as one.

My apologies. I was probably lucky but when it comes to tax related requests, it helps to have full, concise, and complete instructions recorded on tape or in writing in case of 1099 errors or future audits. Not sure I care if it is confusing to the customer support rep on the other end of the line.

[retiredjg]

Conversion from Traditional IRA to Roth including backdoor Roth contribution must have to be subjected to five year rule. Otherwise, that would become a loophole where you simply convert a Traditional IRA to Roth, pay taxes, and take out the distributions, by passing the rules for taking out money from Traditional IRA before 59&1/2 successfully. This doesn't apply once you are 59&1/2 obviously.

There is an exception. If you convert a non-deductible contribution to Roth and there are no earnings that occur between the contribution and the conversion, there is no 5 year clock (or perhaps it is more accurate to say there is nothing for the 5 year clock to apply to).

A semi-exception...if you convert a non-deductible contribution to Roth and their are earnings in between the contribution and the conversion...only the earnings are subject to the penalty of the 5 year rule. In most cases, that taxable part of the conversion is small and people don't mind paying the 10% penalty on $100 or so if they need to get to their money.

[kaneohe]

.............................................................. Call your IRA custodian and request a return of $5000 in your CONTRIBUTIONS.

emphasis probably not necessary for custodian and may confuse them.................they may not know how much came from contributions
(if funds were transferred from another custodian) and probably will not know of contributions held elsewhere. Only owner knows and distributions are treated as contributions out first considering all Roths held as one.

My apologies. I was probably lucky but when it comes to tax related requests, it helps to have full, concise, and complete instructions recorded on tape or in writing in case of 1099 errors or future audits. Not sure I care if it is confusing to the customer support rep on the other end of the line.

Unless you are requesting a specific return of current yr contributions to undo the original contribution, it is not meaningful to request a return
of contributions when you make a withdrawal. The nature of the withdrawal is determined by the ordering rules: first contributions, then conversions earliest first (and within each conversion, taxable part first, then non-taxable ) , and finally earnings. The 1099R does not change since the custodian doesn't know what you are withdrawing.........shown in the box 2b "X"......for taxable amount not determined.
So whether you are withdrawing contributions or earnings, the 1099R does not change. You determine the taxable amount from your records.
The custodian does not.

[Olemiss540]

.............................................................. Call your IRA custodian and request a return of $5000 in your CONTRIBUTIONS.

emphasis probably not necessary for custodian and may confuse them.................they may not know how much came from contributions
(if funds were transferred from another custodian) and probably will not know of contributions held elsewhere. Only owner knows and distributions are treated as contributions out first considering all Roths held as one.

My apologies. I was probably lucky but when it comes to tax related requests, it helps to have full, concise, and complete instructions recorded on tape or in writing in case of 1099 errors or future audits. Not sure I care if it is confusing to the customer support rep on the other end of the line.

Unless you are requesting a specific return of current yr contributions to undo the original contribution, it is not meaningful to request a return
of contributions when you make a withdrawal. The nature of the withdrawal is determined by the ordering rules: first contributions, then conversions earliest first (and within each conversion, taxable part first, then non-taxable ) , and finally earnings. The 1099R does not change since the custodian doesn't know what you are withdrawing.........shown in the box 2b "X"......for taxable amount not determined.
So whether you are withdrawing contributions or earnings, the 1099R does not change. You determine the taxable amount from your records.
The custodian does not.

You are correct and I am glad you added an unless statement to clarify it usually doesn't matter if you request a return of your contributions.

[mcblum]

I am retired.
I take the interest thrown off by my Roth IRA which amounts to several hundred dollars. No change in share amounts. And is non-taxable.
Marty

[retiredjg]

There will be no paperwork until tax time when you will receive a 1099 for the distribution. Call your IRA custodian and request a return of $5000 in your CONTRIBUTIONS.

I agree that this statement is not entirely correct and not entirely incorrect. I think it may be confusing to some who read the thread.

Katenco, if you have made a 2019 contribution to Roth IRA, you can change your mind and take it back and make it like that contribution never happened.

To do this, you must call the custodian (or find and fill in the proper paperwork online) and request a return of a specific contribution done on a specific date(s). You will get that contribution back and all its earnings if any exist. The earnings will be taxable with your 2019 taxes and you will get a 1099 for that, but I do not think the 1099 includes the contribution. It's like you never made the contribution in the first place. No Form 8606 is needed.

If you want to go this route, do not just withdraw your contribution yourself. That will be interpreted as an ordinary withdrawal, not the withdrawal/return of this year's contribution.

It is too late to get a return (or withdrawal) of your 2018 contribution. I believe that ended October 15, 2019.


If you want to just withdraw $5k from the Roth itself, you can do that and that is documented on the Form 8606 already discussed above. Fill out the worksheet in the instructions and keep all this information for the future.

[financeperchance]

Hello,
I am below 59 but I plan to take some money out of my roth ira.

Is there anything anyone can say to talk you out of this terrible idea? Look at what mcblum said for example. I've worked with a lot of people of retirement age who have a very sweet deal with their Roth IRAs. Imagine getting just gobs of tax-free cash every year. I know one couple in their 70s who are literally in Italy right now on extended vacation, using money from their Roth IRAs.

It has to be an extremely good reason to rob from your future self, that's all I'm saying. Please for the sake of that person, make damn sure it's the right decision.