Converted Roth IRA..how much can I take out w/o penalty?

[Guest Clocker]

Hello-

I had a traditional IRA (say about $5k) that I converted to a Roth in 1998. I did the conversion where you can split up the cost over a number of years(4-5 years I think). At the time, the IRA was with Invesco. A few years ago, I moved the Roth IRA from Invesco to my current brokerage firm (TDWaterhouse). So, now I have a Roth IRA account at TD Waterhouse. I’ve added about $1K to it in 2002 but I have not added much to it other than that (preferring to focus on my 401k).

Here is my question: I’d like to get my hands on the money I contributed to the Roth IRA. Does the fact that I did the conversion complicate this? How do I determine how much of the $ I can take out without any type of penalty? Is it just the exact amount I contributed (even pre roth-conversion) or is there some other way to figure it out?

Thanks for any help you can provide…

Clocker

[Appleby]

It depends on your age. If you are at least age 59 ½, then you may withdraw the full balances tax and penalty-free. This applies if the distribution is qualified for any other reason – see http://www.investopedia.com/terms/q/qualif...istribution.asp.

If the distribution is not qualified, then the amount you converted in 1998 can be taken tax and penalty-free because it has been 5-years since the conversion occurred. For the $1,000 you added in 2002, the treatment will be determined by whether it was a contribution or conversion- see http://benefitslink.com/boards/index.php?s...86&hl=qualified

[John G]

Why?

Right now money is on sale. Interest rates are extremely low. You don't say the current value or what you plan to do with the funds. Have you considered alternatives? You can refinance your house, get a home equity loan, look for a zero interest credit card (a very short term option) or intra-family borrowing at a rate that exceeds what most people get on CDs.

The Roth is a great tax shelter. Before I empty one, I would exhaust all the other options.

[Guest Clocker]

I'm back...

John G

Thanks for all those options but they have nothing to do with my question.

Appleby-

Thanks for your input. I'm only about 30. So, what I'm getting from what you said is:

• I can withdraw the amount I converted (i.e. the amount of $ in the account just prior to conversion)
  
• I can withdraw the $1,000 contribution I made after the Roth conversion
  
• I can't withdraw any amount greater than my conversion amount + my post-Roth contribution (any appreciation in the funds must stay in the account)
  

Do I have that right?

Thanks,

C

[John G]

Appleby answered your question, I was commenting on possible alternatives.

Responding to your bullets:

(1) Yes.

(2) Yes, because it was a contribution.

(3) No. You CAN withdraw the other funds, but because of your age (30), you would have taxes and a penalty.

You have additional options if you plan to use the funds for a first home or because you are disabled. These are two of the reasons where the "why" is important.

I also asked "why" because you often have alternatives to dipping into a tax shelter like the Roth. Not everyone that posts here is aware of some of these options... like a bridge loan when you are stuck between two homes. When I respond to a question, I try to answer both the specific circumstances (which is challenging when some details are left out) and provide a generic response that will be benefitial to a larger audiance.

[Guest Clocker]

Thanks very much for your help!