Money from Roth?

[JG EA]

I have a really simple question I think, just need some back up. Taxpayer's retirement plan was stopped by the company. TP put it into his Roth several months ago. This particular account has been losing money for almost a decade now and the client now wants to withdraw everything.

Check me out. He will pay tax and penalty (under 59 1/2) on the amount from the retirement plan to the Roth. He won't pay any tax on any of the Roth because it is less than the taxed money he put in himself and the soon to be taxed retirement money - Correct?

He then can (if enough) take an itemized dedution for the difference of his taxed money put in and the money he took out (providing all is taken out - he has just one Roth and no other IRA accounts - Correct?

[JohnH]

Why does he think his only option is to withdraw it? If he's upset about performance, he could move it into something safer without withdrawing it. Or does he just want to get his hands on the money and is using the poor performance as an excuse?

[veritas]

Sometimes I think

Why does he think his only option is to withdraw it? If he's upset about performance, he could move it into something safer without withdrawing it. Or does he just want to get his hands on the money and is using the poor performance as an excuse?

you are a mind reader.

[okie1tax]

Check me out. He will pay tax and penalty (under 59 1/2) on the amount from the retirement plan to the Roth. He won't pay any tax on any of the Roth because it is less than the taxed money he put in himself and the soon to be taxed retirement money - Correct?

I thought you could only put in after tax money into a ROTH.

[JG EA]

I found out today that the broker is calling this a conversion, but it is from a 401k into TP's Roth. So I still say it'll be taxed with penalty. The broker says no penalty.

[abby]

if it is a true conversion

then there would be tax but no penalty - but there is a 5 year waiting period before the $$ can come out again without penalty. Not the same as a straightforward contribution, which could be treated as you originally stated (schedule A part of the suggestion only if it is the only ROTH they have).

[JG EA]

Abby,

Thank you for the 5 year info. I had forgotten about that while in the middle of the rest.

And thanks for telling me about the comversion. I read an old post today (Burton Koss) that starting 01//01/08 it could go right from the 401 to Roth. I wish I had read that before I talked today to the broker. He treated me like an idiot because I didn't know that.

[drdino]

conversion

Yes, as of 1/1/08 it can go directly into a roth. Before this, it had to be rolled to an IRA, taxed, and then rolled into a roth. Much easier to do this today! The 5 year wait is on converted money, not from the time the account was opened.