Tax planning and compliance for investors
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By Kaye A. Thomas
Updated January 22, 2008
The main rules for distributions from Roth IRAs.
The rules for distributions from Roth IRAs are more complicated than we would like them to be. On this page we provide a brief overview of those rules so you can get the general idea of how they work.
In applying these rules, treat all Roth IRAs as one IRA. You can't change the order of distributions by withdrawing from different Roth IRAs. For example, if you made one or more annual (non-rollover) contributions to a Roth IRA, the first dollars you withdraw from any Roth IRA will be treated as a distribution of your non-rollover contribution — even if you take the withdrawal from a Roth IRA that received only rollover contributions.
Add up the amounts in all your Roth IRAs and determine the amounts is the relevant categories set forth below.
You can withdraw money from a Roth IRA at any time. In some cases you will pay tax or penalty if you withdraw money too soon, but the tax law never prohibits you from taking money out of the IRA. If you really need to take the money out, you can — unless some other situation, such as an order of a divorce court, prevents you from doing so.
The terms withdrawal and distribution mean the same thing. When you take a withdrawal, you receive a distribution.
If you own a regular IRA, you're required to begin taking distributions at age 70½. This rule doesn't apply to Roth IRAs. You're never required to take distributions from your own Roth IRA. Beneficiaries are required to take distributions after the death of the original owner.
The amounts you withdraw from a Roth IRA are considered to consist of the following amounts, in the following order. In each case, you move to the next category when the lifetime total of distributions from all your Roth IRAs exceed the preceding category.
The tax treatment of the different categories of distributions may be summarized as follows:
Applies only when the lifetime total of withdrawals from all Roth IRAs exceeds the lifetime total of regular contributions to Roth IRAs plus the lifetime total of earlier conversions.
Applies only after the taxable portion of the same conversion has been withdrawn.
Applies only after all amounts other than earnings have been withdrawn.
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