Trying to figure out how to transfer this Roth IRA without paying taxes on it

[MoneyCat]

This is a question splitting off of a thread on the Anti-Mustachian sub-forum about John Oliver's retirement plans video. Basically, before I knew better, I invested $5500 in an employer-sponsored Roth IRA with a "financial advisor" at a 1.25% fee. After two years, that Roth IRA is worth $5355. I want to rollover this IRA to the other Roth IRA I own -- the one that's actually making money for me -- with Vanguard. Vanguard requires a medallion signature guarantee, but the "financial advisor" is refusing to give me one (Well actually they did give me one but did not date it, so Vanguard rejected it and then when I tried to get another one, they bitched and moaned about it and then signed the wrong section of the paperwork, then refused to fix the error.) I also have accounts with Bank of America, but they are refusing to give me a medallion signature guarantee unless I transfer the Roth IRA to their equally high-fee Merrill Edge service, and with my local credit union who do not offer medallion signature guarantees.

At this point, I'm looking for another way to transfer this.

1.) I originally got a Roth IRA instead of a Traditional IRA in the hopes that if necessary I could withdraw my contributions tax-free since I already paid taxes on it. Since the full amount in the Roth IRA is less than my contributions, I thought I could simply take a full distribution and be done with them. Now I have people telling me that I will still have to pay 10% taxes on post-tax contributions. At the same time, the IRS website seems to be telling me that I am in fact correct that I can take a tax-free distribution of my post-tax contributions. Can anybody tell me which is correct? (https://www.irs.gov/uac/newsroom/tax-rules-on-early-withdrawals-from-retirement-plans)

2.) According to the IRS website, I may also be able to take a full distribution of my Roth IRA with the 10% taxes taken out (if it's really subject to that) and then simply contribute the 10% out-of-pocket with the rollover and then reclaim the withheld taxes on my 2016 tax return. Am I reading this correctly or do I have this wrong? How would I even reclaim those on my taxes? (https://www.irs.gov/uac/newsroom/tax-rules-on-early-withdrawals-from-retirement-plans)

Any tax experts/Roth IRA experts out there who can give me some advice on this?

[johnny847]

When I posted in the other thread I didnt' realize you actually have losses in the account. That makes things simpler.

You can always withdraw your contributions from a Roth IRA tax and penalty free at any time at any reason. Any gains withdrawn before 59.5 are subject to the 10% early withdrawal tax.

1) You have no gains in your Roth, so there's no 10% penalty for you to worry about. You're right about that.

2) You can take the full distribution from your Roth IRA, and there won't be any 10% penalty. Just open a Roth IRA at Vanguard, and when you make your contribution there it'll ask you if this is a 2016 contribution or a rollover contribution. Mark the latter.
Again, no taxes withheld to reclaim on your 2016 taxes. If you plan on making a 2016 contribution to an IRA, it is especially inmportant to keep for your records confirmations that you took a distribution (withdrew money) from your original Roth IRA and then within 60 days deposited it into a new Roth IRA. 
You need these records because otherwise it'll look like you contributed more than $5500 to IRAs in a single calendar year, a big no no. What you'll actually be doing is one rollover for $5355, and then making a 2016 contribution to an IRA.



Honestly your financial advisor is an asshole and you probably have grounds to sue him, but it's probably not worth the headache to do that.

[jujube]

Is your Vanguard account really making you money???? I have two different accounts with them and both have gone down instead of up...I have been with them for two years and have less then when I started.

[johnny847]

Is your Vanguard account really making you money???? I have two different accounts with them and both have gone down instead of up...I have been with them for two years and have less then when I started.

This is like asking if eating causes diabetes. It can, depending on what  and how much you eat.

[Spork]

Is your Vanguard account really making you money???? I have two different accounts with them and both have gone down instead of up...I have been with them for two years and have less then when I started.

Just a hair under 8% over the last 18 years for me.

[tomorrowsomewherenew]

We've been with Vanguard about a decade and we're also averaging about 8%.

[MoneyCat]

Is your Vanguard account really making you money???? I have two different accounts with them and both have gone down instead of up...I have been with them for two years and have less then when I started.

Over the past two years, the majority of my earnings on Vanguard have been from dividends. Much less from capital gains. Of course, I have no investments in Europe or China right now, which probably has shielded me from the worst of what's been going on.


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[MoneyCat]

My long national nightmare is over. Roth IRA transferred to Vanguard. Now I can finally start making a profit with it. Thanks for the advice.


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[Cromacster]

My long national nightmare is over. Roth IRA transferred to Vanguard. Now I can finally stop start making a profit with it. Thanks for the advice.


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I think I fixed it for ya ;)....otherwise not sure why you switched.

[MoneyCat]

My long national nightmare is over. Roth IRA transferred to Vanguard. Now I can finally stop start making a profit with it. Thanks for the advice.


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I think I fixed it for ya ;)....otherwise not sure why you switched.

Oops, brain fart. Thanks. :-)