Effect of withdrawing Roth initial contribution

L1: Effect of withdrawing Roth initial contributionMy initial 72t plan (now 3 years old) wasbased on the total of two mutual funds, A (traditional IRA)& B (Roth IRA), although I take my payments from A only. My question is: If I now withdraw my initial contribution (and not a penny of earnings) from fund B (Roth IRA established 1999), have I busted the 72t plan so as to face penalties? 2008-01-15 05:13, By: Ridgewood, IP: [216.14.70.134]
L2: Effect of withdrawing Roth initial contributionHello Ridgewood:
Maybe; maybe not. If you are simply taking your correct annual distribution from IRA B, then no, you have not busted your plan. Conversely, if your intent is to again take your regular annual distribution from IRA A and then in addition take monies from IRA B; then yes, you have busted your plan.
TheBadger
wjstecker@wispertel.net
2008-01-15 06:19, By: TheBadger, IP: [72.42.66.180]

L2: Effect of withdrawing Roth initial contributionThank you. I presume, then, that if I had not included the value of fund B (the Roth) in my initial 72t calculations, then any withdrawal from fund B would have no effect on the 72t plan, regardless of any other tax consequences?2008-01-15 07:04, By: Ridgewood, IP: [216.14.70.134]

L2: Effect of withdrawing Roth initial contributionThe rules on ROTH IRA DISTRIBUTIONS are rather complex. There are different rules for ROTH CONTRIBUTIONS vs. ROTH CONVERSIONS. Basically, all distributions from ROTH CONTRIBUTIONS are tax-free after 5 years from the date of the first contribution of any amount, which I think started in 1987. ROTH DISTRIBUTIONS from Earnings are taxable before age 59 1/2, but not after 59 1/2 if the initial contribution was more than 5 years ago. The usual list of Exceptions to the 10% penalty for early distributions apply to ROTH Earningsthe same as for Traditional IRA Distributions.
Using hindsight, you might have been better advised if you had not included the ROTH IRA balance in your SEPP 72-T calculation.
I suggest you get professional tax advice before proceeding in this area, or at least review the IRS Publication 590, and a reference book such as J.K. Lasser YOUR INCOME TAX 2008 (about $ 20).2008-01-15 07:19, By: dlzallestaxes, IP: [151.197.162.171]

L2: Effect of withdrawing Roth initial contributionI think you need to decide whether you in fact included that Roth balance in your original calculation or not.
If you did not, then any distribution you take from the Roth has no effect on the 72t. Taxation differences between the two types of IRAs likewise has no bearing on the 72t plan itself, despite the reporting differences. With the Roth, distributions of your regular contributions come out tax and penalty free anytime. If you take out conversion dollars, they are also tax and penalty free if part of the 72t plan. If not part of the 72t plan, you have a 10% penalty on conversions if done within the last 5 tax years.
If the Roth IS part of the original balance as you indicated in your original post, then amounts you choose to take from the respective IRA types are taxed according to the rules of that particular type. You must use Form 8606 to report the Roth distributions, but these also end up on line 15a of Form 1040, which is the line the IRS should be looking at to determine if you withdrew the correct gross amount for your 72t plan.
Again, as long as you distribute the correct total amount for your plan as originally documented, it does not matter which account they come from. More Roth equals less taxes and more TIRA equals more taxes. You might encounter some custodian coding issues if you are currently getting the exception code on your 1099R, but decide to now incorporate the Roth for distributions.2008-01-15 17:03, By: Alan S., IP: [24.116.165.60]