Withdrawing Roth IRA Contributions From 401k Rollover

[Michael in ABQ]

I am looking to purchase a business and most of my money is tied up in retirement accounts. I'm exploring the idea of withdrawing some funds from a Roth IRA.

I have about $70k in a Vanguard Roth IRA that is primarily from a 401k rollover from an old employer about 3 years ago. At that time it was about $50k and was mostly Roth 401k. I converted the traditional portion (about $10-15k) to Roth that same year (2018) and paid the taxes on it so the whole $50k could grow tax free. Each year prior I would convert a portion of my traditional 401k (including company match) to Roth 401k, usually about $10k a year to avoid a big one-time tax hit.

I know that in general you can withdraw Roth IRA contributions without any penalty and taxes. After all, it's after-tax money. However, in looking through the IRS rules (Publication 590-B) there's a 5-year rule and since I rolled over my Roth 401k to a Roth IRA less than 5 years ago, I'm not sure if I can withdraw any of that money without paying a penalty or taxes. Any tax experts out there that can weigh in?

[terran]

Yes, any taxable traditional to Roth conversions that are withdrawn before 5 tax years has elapsed will have a 10% penalty.

[Michael in ABQ]

Yes, any taxable traditional to Roth conversions that are withdrawn before 5 tax years has elapsed will have a 10% penalty.

So if say $30k of my Roth IRA was converted from traditional more than 5 year ago, or was originally Roth 401k, would that be eligible for withdrawal without penalty?

[secondcor521]

https://www.schwab.com/resource-center/insights/content/can-you-rollover-roth-401k-to-roth-ira

See section on "Digging into the 5-year rule" in the above article.

[terran]

Yes, any taxable traditional to Roth conversions that are withdrawn before 5 tax years has elapsed will have a 10% penalty.

So if say $30k of my Roth IRA was converted from traditional more than 5 year ago, or was originally Roth 401k, would that be eligible for withdrawal without penalty?

Converted more than 5 years ago yes, but you need to look at what you actually contributed to Roth 401(k), not the amount in the Roth 401(k) when you rolled over to Roth IRA.

[Michael in ABQ]

https://www.schwab.com/resource-center/insights/content/can-you-rollover-roth-401k-to-roth-ira

See section on "Digging into the 5-year rule" in the above article.

Based on that I think at least $20-30k of my existing Roth IRA could be withdrawn with no tax and no penalties. For the opportunity I'm looking at, even paying a 10% penalty on $30-40k or so would be well worth it. I plan on using an SBA loan for business acquisition and through September they are waiving the payments up to $9k/month. So that's potentially $20-25k in savings for the size of loan I'm looking at.