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Roth IRAs and testing periods


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Guest needs help
Posted

Can someone explain to me how "testing periods" work in Roth IRAs?

I have never heard of them but on the MSN tax board they were mentioned by someone named Alan who posted:

"With respect to the "testing period" rules here, they can be tricky:

1) If you request a return of contribution, then an earnings calculation is required to be made, and the 1099R is coded accordingly. If you request this, the original contribution DOES NOT COUNT for the Savers Credit, but neither will the distribution count in the testing period for this or other years.

2) If you request an early distribution that is NOT a return of your original contribution, then there is NO earnings calculation required, and the 1099R is coded differently from the above. If you do this, your contribution DOES count toward the credit, BUT also counts as a reduction for the entire 3.25 year testing period surrounding the contribution year. This impairs future ability to take the credit.

But you can request just a distribution taken from other Roth balances beside your current contribution if you wish to. 2) above then applies."

For further context the original thread can be found here: Link

I am wondering what the consequences are for removing a 2008 contribution down the road. I want to remove the contribution only, not any earnings.

Thanks for any help you can give!

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