Roth IRA Question regarding early withdrawal penalty.?

Question

I had a retirement account through an employer that I converted to a Roth IRA when I left the company years ago. I now need to make an early withdrawal. I know my contributions can be withdrawn without penalty, but how about the employer contributions make when I still worked there? Can they be withdrawn without penalty as well? Any help would be greatly appreciated...

Answer 1

Your employer retirement account included contributions (yours and your employer match) plus earnings. When you converted that into a Roth IRA, on the date of conversion that account had the same amount of contributions and earnings. You paid income taxes on the entire amount converted at the time of the conversion.

Hopefully the Roth IRA that received the conversion does not contain other assets. I assume this is the case. Then you must keep that Roth IRA open for five years starting January 1 of the year you created the account. After that point, you can withdraw your original contributions (that came from your own contributions to the employer plan, and the employer contributions) without tax or penalty.

For converted Roth IRAs, all converted money must be in the account for five years before you can take anything out without penalty. This is quite different from Roth IRAs that were not created from a conversion.

If you have not kept the converted money in the Roth IRA for five years as defined above, then even if that Roth IRA has been open for five years (because it had older contributions in it before the conversion), you are going to pay a 10% penalty on any distributions of the converted contributions.

Answer 2

What ever you have put into your ROTH, you can take out at ANY TIME with NO FEE nor a penalty! Only EARNINGS will you face a penalty on. The money you contributed were After tax dollars and are not double taxed (or taxed again). This is the greatest feature of the ROTH IRA (and the newer ROTH 401K's). I still would advise againt it for you cannot then later go back and put back in what you took out. Your are allowed $5000 max to put in each year and thats it. I say leave it in your ROTH until your retired.

Answer 3

There are special rules for the withdrawl of Roth conversions from IRAs/401k's.

This is straight from memory and someone should correct me if I am wrong......

If you withdraw a converted amount from a Roth that hasn't been in the account over 5 years, you pay a 10% penalty.

Here is heirarchy of withdrawls under 5 years if I remember correctly:

Contributions: No Tax - No Penalty.
Conversions: No Tax - 10% Penalty.
Earnings: Regular Tax - 10% Penalty.

Answer 4

The tax-planning implications on Roth IRA withdrawals are numerous -- too numerous to mention here. Different tax and penalty rules can apply to distributions coming from contributions, conversions, or earnings.
If your Roth IRA consists of only contributions these rules aren't too difficult to follow. But if your Roth IRA consists of contributions, conversions in different years, and earnings on both, then the "qualified" distribution rules and the penalty rules can get very complex.
Your best bet? Keep your paws off your Roth IRA account unless your distribution is qualified and you meet one of the penalty exceptions. It'll make your tax life much easier.