Roth IRA Withdrawal Questions

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milopup04
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Joined: Mon Jul 26, 2021 11:58 am

Roth IRA Withdrawal Questions

Post by milopup04 »

Hello,

I am looking to withdraw around 6K from my Vanguard Roth IRA- total value about 75K. I have had this Roth IRA for about 15 years.

I understand that the money I have CONTRIBUTED to this Roth IRA can be withdrawn penalty/tax free. Over the 15 years I have had this Roth IRA, the amount I have contributed easily exceeds 6K.

Questions: If I withdraw the 6K, how do I specify that I want 100% of this to be from contributions, as opposed to earnings? Is this even possible to ensure I have no penalties?

If what I would like to do is possible, how would the transaction transpire? Would shares of the Vanguard mutual funds that my Roth IRA is invested in be sold?


Thanks!
sailaway
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Re: Roth IRA Withdrawal Questions

Post by sailaway »

You don't specify, the IRS requires that you distribute contributions until they are exhausted, then conversions by year, and only after both contributions and conversions are exhausted do they start counting the earnings. It is just a matter of the totals, then anything in excess of contributions and conversions is earnings.

Unless you have cash holdings, yes, you will have to sell shares.
Last edited by sailaway on Mon Jul 26, 2021 12:54 pm, edited 1 time in total.
khunron
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Re: Roth IRA Withdrawal Questions

Post by khunron »

Are you older than 59 1/2? If so, it's all tax free so it wouldn't matter.
Alan S.
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Re: Roth IRA Withdrawal Questions

Post by Alan S. »

sailaway wrote: Mon Jul 26, 2021 12:31 pm You don't specify, the IRS requires that you distribute contributions until they are exhausted, then conversions by year, and only after both contributions and conversions are exhausted do they start counting the earnings.

Unless you have cash holdings, yes, you will have to sell shares.
Since you will have to report this distribution on Form 8606 unless your Roth is already qualified, you will have had to keep track of your Roth IRA regular contribution basis, since that figure goes on line 22 of Form 8606.The distribution is tax and penalty free as long as the line 22 amount exceeds your distribution.

If you do not know the figure other than it exceeds 6000, and take a guess for line 22, it may or may not work out in the long run. The IRS could beef up it's IRA oversight in the future if they hire enough agents, so attempt to determine your regular Roth IRA basis if you can. You should keep Form 5498 that reports all your Roth regular contributions, conversions, and rollovers from employer plans. If you have had the same custodian from the start, they may be able to recover the info. Tax software can also capture this data, if it is entered each year.
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retiredjg
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Re: Roth IRA Withdrawal Questions

Post by retiredjg »

milopup04 wrote: Mon Jul 26, 2021 12:18 pm I understand that the money I have CONTRIBUTED to this Roth IRA can be withdrawn penalty/tax free. Over the 15 years I have had this Roth IRA, the amount I have contributed easily exceeds 6K.
Your direct contributions are available any time with no penalty or tax. If you have made contributions through Roth conversions (or the "backdoor" process), it can be more complicated.

Questions: If I withdraw the 6K, how do I specify that I want 100% of this to be from contributions, as opposed to earnings? Is this even possible to ensure I have no penalties?
You don't specify. The IRS has a designated order....they specify for you. Contributions come out first. Earnings come out last. Conversions in the middle.

As mentioned by Alan, a withdrawal from Roth is documented on your taxes - Form 8606. Don't just take money out knowing that you have put more than $6k in there. Make an exact list of all contributions if you can or compile your best guess knowing that you may have to live with that best guess until age 59.5.
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retiredjg
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Re: Roth IRA Withdrawal Questions

Post by retiredjg »

Welcome to the forum. :happy
helloeveryone
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Re: Roth IRA Withdrawal Questions

Post by helloeveryone »

retiredjg wrote: Mon Jul 26, 2021 1:44 pm
milopup04 wrote: Mon Jul 26, 2021 12:18 pm I understand that the money I have CONTRIBUTED to this Roth IRA can be withdrawn penalty/tax free. Over the 15 years I have had this Roth IRA, the amount I have contributed easily exceeds 6K.
Your direct contributions are available any time with no penalty or tax. If you have made contributions through Roth conversions (or the "backdoor" process), it can be more complicated.

Questions: If I withdraw the 6K, how do I specify that I want 100% of this to be from contributions, as opposed to earnings? Is this even possible to ensure I have no penalties?
You don't specify. The IRS has a designated order....they specify for you. Contributions come out first. Earnings come out last. Conversions in the middle.

As mentioned by Alan, a withdrawal from Roth is documented on your taxes - Form 8606. Don't just take money out knowing that you have put more than $6k in there. Make an exact list of all contributions if you can or compile your best guess knowing that you may have to live with that best guess until age 59.5.
Age 55 if the person quits/retires/gets laid off correct?
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retiredjg
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Re: Roth IRA Withdrawal Questions

Post by retiredjg »

helloeveryone wrote: Mon Jul 26, 2021 2:11 pm Age 55 if the person quits/retires/gets laid off correct?
To my knowledge, age 55 has nothing to do with Roth IRA. You may be thinking about withdrawals from a 401k (and similar) plan at an employer from which you retire in or after the year you reach age 55.
helloeveryone
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Re: Roth IRA Withdrawal Questions

Post by helloeveryone »

retiredjg wrote: Mon Jul 26, 2021 2:15 pm
helloeveryone wrote: Mon Jul 26, 2021 2:11 pm Age 55 if the person quits/retires/gets laid off correct?
To my knowledge, age 55 has nothing to do with Roth IRA. You may be thinking about withdrawals from a 401k (and similar) plan at an employer from which you retire in or after the year you reach age 55.
Oh yes - I rechecked and it said that applies to 401k or 403b.
thanks!
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