Roth Iras

1iron

HI,

I am over 65. I have a self-directed Roth IRA that I've contributed to and has been open for more than 5 years. Last year my company offered opening a Roth through work, which i took. combined I haven't contributed more than the maximum allowed.

Can i take that money out of the work Roth and transfer it to my existing Roth?

IE

$5000 in personal Roth open more than 5 years

$4000 in Work Roth open less than 5 years.

If i can, what restrictions do i have on the accessing that $9000. I'm guessing that I can take out the $9000 since that was all after tax contributions.

Hypothetically, say I make 100% on that money, thus now having $18000.

Say I take out $14000 for some reason, which would be $5000 more than i had contributed to the account, would i be penalized or taxed on any of the $5000 that is above the contributions.

Again, my personal Roth is more than 5 years old, the work Roth is not, over 65 years old.

Thanks-

MatthewD

Hello 1iron,

Thank you for the question. Let me restate your questions. What restrictions do you have on your withdrawals (distributions) from your two Roth IRA accounts? Can you take out money from the work Roth and put it into your personal Roth IRA (called a rollover).

To be tax free and not subject to penalties, a Roth IRA distribution must be "qualified". To be qualified a Roth IRA distribution must meet two requirements. The IRS states: (For detail see IRS Publication 590b.)

1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
2. The payment or distribution is:
   1. Made on or after the date you reach age 59½,
   2. Made because you are disabled,
   3. Made to a beneficiary or to your estate after your death, or
   4. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

Let me explain #1, since that will be important to your situation. To be a qualifying distribution it must be made after 5 years, beginning with the first day of a tax year for which the first contribution was made. For example, if you began contributing to a Roth IRA in May 2019, then your 5 qualifying years would be 2019, 2020, 2021, 2022 and 2023. Any distribution made after the end of 2023, would be qualified. Meaning no penalties. If you started contributing to your Roth IRA through work in 2023, then it will not qualify until after year end 2027.

However, keep in mind that you can always withdraw your basis (contributions of $9,000) without any penalty due to the 5-year waiting period.

Let's take a look at your example of the $14,000 distribution. Since you are over 59 1/2 part of the withdrawal is going to be tax free on the personal Roth. Assuming 100% growth, that means up to $10,000 would be tax free from the $5,000 personal Roth. The other $4,000 could potentially all be basis and have no penalties as well. But assuming it was some basis and some earnings, then in your case, you may need to pay taxes on the earnings of the unqualified distribution.

There is an ordering rule for distributions, and you can withdraw your regular contributions first. That would be important to keep in mind in cases where you have not met the 5-year holding period.

You can rollover the amounts from your work Roth IRA to your personal Roth IRA and there are no tax penalties. Keep in mind you are limited to 1 rollover from one account to another. I recommend doing a direct rollover from one plan to the next, referred to as a trustee-to-trustee transfer.