Author Topic: Roth pipeline: documentation?  (Read 2426 times)

Cressida

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Roth pipeline: documentation?
« on: October 27, 2014, 02:24:06 AM »
I understand the rules about the Roth pipeline, but I'm wondering how the IRS figures out whether to charge you a penalty on your withdrawals. Not that I'm planning to incur a penalty, but I'm really just trying to figure out if there's some complicated form I need to complete and send to the IRS to prove that I don't owe one, or if it's easier than that. In the worst case, I'm imagining some ugly form where I have to track every contribution by date and amount.

I did do a little Googling and forum-searching, but did not find a definitive answer.

I much appreciate any insight.

Pooperman

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Re: Roth pipeline: documentation?
« Reply #1 on: October 27, 2014, 05:42:53 AM »
From my reading and understanding of the way it's set up, here are the main points. You are allowed to withdraw your basis (what you contributed) at any time. You can't replace this amount later. You must fill out a form to tell the IRA you are removing some of the basis and how much you have etc. when you take part of a t-IRA and convert to a r-ira, the amount converted becomes the basis of the r-IRA. So in 5 years you can take that basis out tax free. Thus Roth pipeline.

Gone Fishing

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Re: Roth pipeline: documentation?
« Reply #2 on: October 27, 2014, 08:47:29 AM »
I recently ordered annual statements, back to 2000, from the mutual fund company that had my Roth for many years before I moved it to Vanguard.  There was no charge for the service and I had the statements in a few days. I can use them to document my contributions in the event the IRS ever challenges my ROTH contribution wthdrawals.  There are very few documents I consider "forever" files, but Roth contributions are now one of them.   

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Re: Roth pipeline: documentation?
« Reply #3 on: October 27, 2014, 08:52:32 AM »
Does the pipeline conversion get taxed at normal income rates? I haven't found anything on this. Just wondering if sheltering stocks would be less beneficial if you had to pay income instead of capital gains tax if you were moving more than 15% tax rate

Gone Fishing

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Re: Roth pipeline: documentation?
« Reply #4 on: October 27, 2014, 08:59:58 AM »
Does the pipeline conversion get taxed at normal income rates? I haven't found anything on this. Just wondering if sheltering stocks would be less beneficial if you had to pay income instead of capital gains tax if you were moving more than 15% tax rate

The amount converted fron the traditional IRA to the ROTH IRA would be taxed at regular income rates.  Where a FIRE'd person wins is that tax rates (marginal and effective) for an early retiree should be VERY low, or even 0%.

Cressida

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Re: Roth pipeline: documentation?
« Reply #5 on: October 27, 2014, 11:22:03 PM »
Thanks, this helps. I should have been clearer in my original post - when I said "withdrawals," I meant withdrawals from the Roth, not withdrawals from the tIRA to fund the Roth. But I think you all got that.

So Close makes a reasonable point: as long as I have all of the documentation, I'm safe; that is, even if I accidentally neglect to submit something I'm supposed to, at least I'll have all the evidence in case of an audit. That makes me feel a little more relaxed.