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Calculating Roth IRA Basis

This is a followup to a question I asked back in June. My Roth IRA contains regular contributions as well as conversions from both deductible and non-deductible IRA contributions. I have not tracked the basis over the years, but I believe I have all the requisite paperwork (specifically forms 5498 and 8606). Is there a simple procedure/algorithm for computing my basis today? It seems relatively straightforward, but I just want to make sure I'm avoiding all the pitfalls.
Thanks, Bill
Reply to
Bill Woessner
Bill Woessner writes:
It's very easy. Assuming you've never taken a Roth distribution, your Roth IRA basis is the sum of the full amounts of every regular Roth contribution and conversion contribution you've ever made.
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Rich Carreiro                            rlc-news@rlcarr.com
Reply to
Rich Carreiro
I should be more specific about what I'm trying to figure out. I want to know how much money I could withdraw from my Roth IRA tax- and penalty-free (right now). I know I have to worry about the 5-year rule for conversions. But does the 5-year rule apply to non-deductible traditional IRA contributions, as well as deductible ones (including 401k rollovers)? Consider the following scenario, which I do every year:
My traditional IRA balance is $0. I contribute $5,500 to my traditional IRA. I immediately convert that traditional IRA to a Roth IRA. Could I then withdraw that money tax- and penalty-free? It seems like I should be able to, but I can't really find any documentation one way or the other. With the elimination of the income limit for Roth conversion, it seems like this would be a more and more common occurrence.
Thanks, Bill
Reply to
Bill Woessner
Bill Woessner writes:
All contributions and conversions always come out income-tax free.
All contributions always come out penalty-free.
The 5-year clock on a conversion only matters to the extent the conversion was taxable. Or put another way, the pre-5-year penalty only applies to the extent there would have been a penalty on the trad IRA distribution if you hadn't converted it.
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Rich Carreiro                            rlc-news@rlcarr.com
Reply to
Rich Carreiro
The 5 year rule applies to conversion -- including those which are the result of non-deductible traditional contributions which were then /converted/.
No. 5 year rule applies. But it applies specifically (as Rich answered separately) to the amount to the extent that you'd paid taxes on the conversion. So if the $5500 didn't grow at all and the conversion was tax-free, the withdrawal would be penalty free.
Similarly, (again, as Rich noted), had you made the $5500 non-deductible traditional IRA contribution and then immediately withdrew it (okay, ignoring "recharacterization") -- then, again, no penalties or taxes apply because you, effectively, pulled out only "after-tax" money.
Look at the docs for how the taxes and penalties are computed.
Reply to
David S. Meyers, CFP(R)

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