Author Topic: Roth ladder question  (Read 630 times)


  • 5 O'Clock Shadow
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Roth ladder question
« on: May 19, 2021, 12:58:48 PM »
Possibly a dumb question but I want to double-check!
Contributions to a Roth can be withdrawn tax-free and penalty-free. Do ALL contributions need to "season" for five years before a penalty-free withdrawal, or just traditional IRA rollovers?

I have the bulk of my retirement savings right now in a tIRA. My Roth currently stands at $21,000 in contributions and a bit over $8,000 in gains. If I decided to quit my job tomorrow, could I withdraw that $21,000 to cash/brokerage right away to pad my cash cushion for the first 5 years of the Roth ladder, or could I only withdraw contributions more than 5 years old?
Thank you!


  • Pencil Stache
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Re: Roth ladder question
« Reply #1 on: May 19, 2021, 01:13:01 PM »
Direct contributions to your Roth IRA can be withdrawn any time, with no penalty or tax.


  • Magnum Stache
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Re: Roth ladder question
« Reply #2 on: May 19, 2021, 01:15:27 PM »
Only conversions that you owe tax on need to season for five years, sort of. If you are only converting deducted tIRA contributions and growth, then yes, five years or the year you turn 59.5 (whichever comes first) until the funds are available penalty free. This is the opposite of the gains, which are only available five years or the year you turn 59.5 (whichever comes last).

You must take 1) regular Roth contributions, then 2) oldest non deductible conversions, then 3) oldest conversion. Only then will the second oldest non deductible conversion be available. This does not have to be done in steps, but it is how the IRS decides which bits you owe the penalty on.

Non deductible conversion example:
-you convert $10,000. $7,000 was a non deductible contribution, so you owe no tax. The other $3,000 was a deductible contribution plus the growth on both contributions (for this example, this is the entirety of your tIRA). You owe taxes on the $3,000. Next year, you want to pull money out, you can pull the $7,000 as if it were a contribution, but the $3,000 will be subject to the penalty until 5 tax years have passed.

"sort of," means that if the above did not empty your tIRA, but rather represents the proper pro rata for your conversion, the ordering rules require you to pull and pay penalty on the $3,000 from the above example prior to gaining access to the new conversions. ie, if you have non deductible contributions in the tIRA, you cannot just assume you will have access to that portion every year, penalty free.