Roth IRA Rules Penalties

The Roth IRA rules penalties define the penalties associated with Roth IRAs. Roth IRA rules penalties are different from traditional IRA rules penalties. Roth IRA rules penalties are discussed in this section of Roth IRAs information website.

What are the ordering rules penalties for Roth IRA distributions?

Roth IRA contributions and Roth IRA earnings always come out in this order:

• Regular Roth IRA contributions.

   

• Roth IRA conversion contributions (from a traditional IRA), earliest Roth IRA conversions first (FIFO or first come first serve basis).

• Earnings on Roth IRA contributions.

Example:

Mr. Jones, age 57, has made $6,000 in regular Roth IRA contributions and converted $10,000 from a traditional IRA to Roth IRA under Roth IRA conversion rules. The Roth IRA is now worth $24,000. He takes a Roth IRA distribution of $9,000. $6,000 Roth IRA distribution is considered a return of the regular roth IRA contributions and $3,000 is from the Roth IRA conversion.

What is the penalty if Roth IRA conversion contributions are distributed within 5 years of the year of Roth IRA conversion?

Generally, there is a 10% Roth IRA penalty if within a 5 year period starting with the year in which the Roth IRA conversion contribution was made from a traditional IRA to a Roth IRA, an amount attributable to the Roth IRA conversion contribution is distributed.

Example:

Two years ago Mr. Smith converted $15,000 from a traditional IRA to a Roth IRA. The Roth IRA also contains $2,000 of regular Roth IRA contributions. He now takes a Roth IRA distribution of $6,000. $2,000 is a distribution of the regular Roth IRA contributions. $4,000 is a Roth IRA distribution from the Roth IRA conversion. The $4,000 is subject to the 10% Roth IRA penalty, unless an exception applies, since it was distributed within 5 years from the conversion. There is no income tax since the income tax was paid in the year of Roth IRA conversion.

Are Roth IRA distributions required upon reaching age 70½?

No.

The required minimum Roth IRA distribution rules do not apply to a Roth IRA while the Roth IRA owner is alive.

Required minimum distributions of Roth IRA are required to be taken by the Roth IRA beneficiary.