Roth IRA and Tax

[Guest Gina]

Sorry if this has already been covered elsewhere.

Back in 1997 I converted an IRA to a Roth IRA. I paid taxes on it at the time of the rollover. A few months ago, I needed to take the majority of money from my Roth IRA due to a house purchase. I did this under the assumption that I'd already paid tax, therefore wouldn't owe again. But when I did this I was advised to have tax withheld, which I did just to be on the safe side. Is this right? I shouldn't have to pay tax on it again, should I?

[Appleby]

No. You will not owe any taxes on the amount that you withdraw. Exceptions apply to amounts representing earnings, unless you were at least age 59 ½ when the distribution occurred-which would make the distribution qualified ….and you would never get to the earnings until you have withdrawn the original value of your contributions and conversions (see below for example) Also, if your distribution is $10,000 or less and it was used to purchase, build or rebuild your first home, it would be tax-free as that would also be a qualified distribution

Example:

Conversion amount in 1997 - $40,000

Earnings accrued to date $4,000

Total balance -$44,000

Distributions in 2005 or 2006- $10,000

$10,000 would be tax-free

If more than $40,000 is withdrawn, the amount in excess of $40,000 will be subject to income tax, unless the distribution is qualified.

Generally, the withholding rules do not apply to Roth IRA distributions.

[Guest Gina]

Thanks. Having read your link about the distribution being qualified, I think I owe again.

Here's my exact situation. I live in the UK now, but as a US citizen I still have to do taxes. (I work for a UK company so my taxes always show that I don't owe, as all my pay is foreign-earned.) I'm 40 years old, and my distribution was about $6000, which was most of it. This wasn't to purchase a first house, it was to put toward a second new house. With regard to the distribution being qualified, the only criteria I meet is that it's over 5 years since the Roth was established.

Sorry if I sound stupid, I'm just really worried about owing more tax. Thanks so much for your help.