A 51 year old taxpayer opened up a Roth IRA in June, 1999 and has been putting $100 a month into it up until August, 2005. In September, 2005 she withdrew the total value (balance) of $3,800 and the brokerage firm deducted $380 for federal withholding and said it was an early withdrawal with no exceptions. Does she have to include the $3,800 in her income and does she have to pay the 10% penalty? She owned the Roth for five years and had no previous withdrawals.
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Roth IRA basis
What is her basis in the account? After 5 years from your original contribution you can withdraw any contributions tax-free, so if she put in at least $3800, the withdrawal is not taxable. If she put in more than $3800 and withdrew the entire amount of her Roth IRAs, she has a loss, deductible on Sch. A, subject to the 2% limit on misc. deductions. -
It shouldn't matter what her basis is in regards to taxable income since all distributions are tax free once the 5-year requirement is met.Comment
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$100 a month contributions from June 1999 to August 2005 equals $7,500 in contributions. Since Roth contributions are not deductible, her basis equals $7,500. If her total balance in August 2005 was $3,800, none of the withdrawal is taxable or subject to the 10% penalty.
Are you sure it is a Roth IRA? Why would the brokerage firm let her withhold $380 in federal taxes when they should know none of it would be taxable?Comment
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Not unless she is over age 59 1/2. She was only 57 in August 2005.Originally posted by GabrieleComment
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Bees, I looked in TTB before I posted because I thought of the age limit. I couldn't find anything in TTB and assumed I was mistaken.Comment
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TTB, page 13-5, "Qualified distributions are tax free if the participant has held a Roth IRA for five years, and it is due to:
a) The participant is over age 59 1/2,
b) Death or disability of participant, or
c) Qualified first time home buyer.Comment
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