Unqualified Withdrawals

[TD]

If you withdraw from conversion amounts in a ROTH IRA before age 591/2 and have not met the 5-year rule, the conversion amount is subject to the 10% penalty tax because you are not age 591/2 and the earnings on the conversion amount would be taxable, as well as subject to the 10% penalty, correct? But if you are over age 591/2, then no tax or penalty amount applies but you will be taxed on the withdrawal of any earnings because you have not met the 5-year rule, correct?

If you withdraw money  from a Roth  401k account and you are under age 591/2, you can withdraw contributions without tax or penalty but earnings will be taxes and also subject to 10% penalty, correct? 

 

[Tom Veal]

Nonqualified distributions from Roth IRA's are treated as coming first from previously taxed contributions.  Therefore, they are tax-free until the amount distributed exceeds the amount contributed.  After that point, the distributions are taxable and, if the IRA owner is under age 59½, are subject to the ten percent excise tax on premature distributions.

Starting in 2024, thanks to a SECURE Act 2.0 amendment, nonqualified distributions from Roth 401(k) accounts will be taxed just like Roth IRA distributions.  Until the end of 2023, however, a Roth 401(k) nonqualified distribution must be allocated between contributions and earnings.  The portion allocated to earnings is taxable (unless rolled over to a traditional IRA or other eligible retirement plan), and the taxable amount is subject to the ten percent excise tax if the participant is under age 59½, unless he terminated employment at or after age 55.

[Belgarath]

1 hour ago, Tom Veal said:

Starting in 2024, thanks to a SECURE Act 2.0 amendment, nonqualified distributions from Roth 401(k) accounts will be taxed just like Roth IRA distributions. 

Hi Tom - are you saying that 401(k) Roth account distributions (starting in 2024) will be a FIFO ( no tax until all contributions are withdrawn) treatment for distributions, just like Roth IRA's? I didn't see this (or maybe I just skipped over it) in SECURE 2.0. Could you let me know what section? Or maybe that's not what you are saying?  Thanks so much!