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Withdrawals from Roth IRAs

Last update on: May 28 2020
By Bruce Miller

After discussing elective withdrawals from Traditional IRAs in my previous article and answering a few questions that I encountered while dealing with real customers and before tackling rollovers and mandatory withdrawals, I will discuss briefly withdrawals from roth iras (RIRAs). Just because Roth IRAs are funded with after-tax dollars, it does not mean that the rules governing withdrawals are any less specific or less complex than rules that apply to withdrawals from Traditional IRAs.

1.  Elective Withdrawals from Roth IRAs may be made by the RIRA owner at any time, at any age and for any reason.

2.  Qualified Withdrawals are exempt from any income taxes or penalties. To be considered Qualified Withdrawals, the withdrawals must meet BOTH conditions – a and b – listed below.

a.  The RIRA owner has held any Roth IRA for at least five years

i.  The five-year ownership period begins Jan. 1 of the year in which the IRA owner made a direct contribution or a RIRA conversion.

ii.  RIRA and an employer plan associated Roth IRA have separate five-year periods. Rolling over an employment retirement plan-based Roth IRA to one’s RIRA will not transfer the retirement plan Roth holding period.

b.  At least one of the following conditions exists:

i.  The IRA owner is at least 59.5.

ii.  Death of the RIRA owner – payments to beneficiaries.

iii.  Disability of the RIRA owner. The IRS definition of disabled applies here, which states that you are disabled if “you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued and indefinite duration.”

iv.  The withdrawal’s purpose is for a down payment to purchase a principal residence for the IRA owner or family member, if the new homeowner has not owned a home in the past two years. There is a $10,000 lifetime limit to this form of qualified withdrawal.

3.  Non-Qualified RIRA withdrawals

a.  Non-Qualified withdrawals, elective or mandatory, are withdrawals that are not “qualified,” i.e. these withdrawals do not meet the two conditions in point 2 listed above.

b.  If a person inherits a RIRA, all mandatory annual withdrawals are non-qualified if the two provisions in point 2. above have not yet been met by the deceased RIRA owner.

c.  If someone owns more than one RIRA, all the individual RIRAs are added together and treated as a single account.

d.  Non-Qualified withdrawals occur “direct contributions first” – RIRA Basis –for which there is no penalty and no tax.

e.  The account owner may withdraw any available Roth conversion amounts made during the previous five years only after all past direct contributions are withdrawn, which will include Roth conversions made more than five years ago.

i.  If the conversion included basis, then the pretax part of the conversion is withdrawn first. When these have been fully withdrawn, then the basis amount is withdrawn.

ii.  If five years or age 59.5, whichever occurs first, has not been reached yet following the withdrawal from the RIRA, then any such conversion amounts withdrawn in the past are subject to the 10% penalty, but do not have to be included as income. The owner already paid taxes when the funds were converted and does not have to pay taxes again.

iii.  If there was more than one Roth conversion in the past five years, the funds are withdrawn from the accounts in the order of the conversions, with the most recent conversion withdrawn first.

e.  The last part of the non-qualified withdrawal is the untaxed portion – earnings from all sources within the RIRA – which will be treated that year as ordinary income and may be subject to a 10% penalty unless one of the defined exceptions exist. The exceptions are the same as for withdrawals from Traditional IRA accounts and you can find the complete list in bullet 4. of the Elective Withdrawals from Traditional IRAs.

4.  Required Minimum Distributions (RMDs) are not required of the RIRA owner, even if the owner has not held a RIRA for at least five years when they reach ago of 70.5.

a.  However, a Retirement Plan-Roth may require RMDs if it is still associated with the employer’s retirement plan when the owner attains age 70.5.

In my next article, I will share a few answers to questions that I received from real customers. I hope that my answers to these questions will provide additional clarification of the rules listed in this article that apply to Roth IRA withdrawals.

Bruce Miller



Bruce Miller is a certified financial planner (CFP) who also is the author of Retirement Investing for INCOME ONLY: How to invest for reliable income in Retirement ONLY from Dividends and  IRA Quick Reference Guide.


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