Roth IRA Distribution Penalty

[apwalters11]

Hi Everyone,

I opened a Roth IRA with some post-tax savings I had lying around about 4 years ago and contributed again about 3 years ago with additional post-tax savings. I am well under 59.5 years old and obviously have had the account open for less than 5 years.

I have decided that I want to withdraw the funds from my Roth IRA to put the funds into my company's retirement plan instead, but am worried about the distribution penalties. The account is still only worth about as much as all of my contributions combined so I don't care if any earnings are taxed. Would I be forced to pay any other penalties? The contributions were made post-tax so I wouldn't be forced to pay income tax on the Roth IRA again, would I? Which tax forms, if any, would I be required to fill out?

Thanks,
Aaron

[disneysteve]

You can withdraw your contributions at any time without penalty. You just can't withdraw earnings. So if you've put in $5,000, you can take out $5,000.

My question is WHY? A ROTH is much better than most any company plan. If you don't like how it is currently invested, change the investments but don't close the account.

Tell us more and we can give more advice.

[apwalters11]

Thanks for the response!

It is a brokerage account with Wells Fargo and to be honest I'm just sick of all their fees. My company retirement plan with ING seems to have plenty more options, freedom, and no fees.

[cooliemae]

I believe that you will have to pay ordinary income tax on the earnings that are withdrawn before the 5 year mark and a 10% penalty on top of that for withdrawing before 59.5 years of age. Of course this only applies to the earnings and not the principle.

[apwalters11]

So would my withdraw be a "qualified" distribution as long as it is less than or equal to the original investment amount?

[disneysteve]

Thanks for the response!

It is a brokerage account with Wells Fargo and to be honest I'm just sick of all their fees.

So transfer it somewhere better like Vanguard or T. Rowe Price.

[FrugalTexan75]

You can withdraw any money that you personally contributed to the ROTH with no penalties/taxes. Any money above what you contributed will be subject to taxes and possibly penalties.

So if you contributed $3,000 and have a balance of $3,200, then $200 will be subject to taxes and possibly penalties.

You can avoid that though by transferring the money directly from where you have it into a similar ROTH account at ING, etc. I'm sure that the customer service people at ING would be happy to walk you through how to do it.

[jpg7n16]

So would my withdraw be a "qualified" distribution as long as it is less than or equal to the original investment amount?

This shouldn't matter, cause you shouldn't close out your Roth. Transferring to a different firm is not a taxable event.

As long as it's in a Roth, it will grow tax free. Once you pull it out, it grows taxable. Why on earth would you want to pay taxes, when you don't have to??


I tend to lean towards Fidelity and Vanguard, but if you already have ING and like the service you're receiving - move your Roth IRA there. No tax consequences whatsoever.

The service for ING IRAs:
Open an IRA

Open Roth IRA online, and since you wanted to invest in stocks and mutual funds, choose the ShareBuilder option.

After the account is opened, you likely can initiate the transfer from Wells Fargo to ING online. If not, there's a phone number on the page to call.


Then all your accounts would be in one place - and not at Wells Fargo.

[kv968]

Thanks for the response!

It is a brokerage account with Wells Fargo and to be honest I'm just sick of all their fees. My company retirement plan with ING seems to have plenty more options, freedom, and no fees.

Just to be clear, even if you decide to roll your IRA over to ING, you WON'T be transferring your money into your company's retirement plan but keeping a Roth IRA instead. I take it you realize that but just wanted to be certain.

[disneysteve]

My company retirement plan with ING seems to have plenty more options, freedom, and no fees.

Just to be clear, even if you decide to roll your IRA over to ING, you WON'T be transferring your money into your company's retirement plan but keeping a Roth IRA instead.

Also, be careful about the "no fees." While there might not be fees on the surface, watch out for the expense ratios of the funds you are investing in. I don't know how ING stacks up in that department but be sure to compare to low cost leaders like Vanguard to make sure the ING options are as cheap as you think.

[bjl584]

Hi Everyone,

I opened a Roth IRA with some post-tax savings I had lying around about 4 years ago and contributed again about 3 years ago with additional post-tax savings. I am well under 59.5 years old and obviously have had the account open for less than 5 years.

I have decided that I want to withdraw the funds from my Roth IRA to put the funds into my company's retirement plan instead, but am worried about the distribution penalties. The account is still only worth about as much as all of my contributions combined so I don't care if any earnings are taxed. Would I be forced to pay any other penalties? The contributions were made post-tax so I wouldn't be forced to pay income tax on the Roth IRA again, would I? Which tax forms, if any, would I be required to fill out?

Thanks,
Aaron

Why cancel your Roth? Why not have both a Roth and your company's plan simultaneously? Within a Roth you can invest in nearly anything that you want. You have ultimate freedom and control of your investments. With your company plan you are limited to the fund choices that they offer.

[kv968]

Also, be careful about the "no fees." While there might not be fees on the surface, watch out for the expense ratios of the funds you are investing in. I don't know how ING stacks up in that department but be sure to compare to low cost leaders like Vanguard to make sure the ING options are as cheap as you think.

I'd really keep this in mind. I checked a sample of their no transaction fee funds and from what I saw they were kinda expensive (1.1%+). You may be getting cheaper ratios through your company's plan but those aren't necessarily what you'll pay for them on your own. As Steve, check it out and keep that in mind.

IMO you would be better off rolling it over to Vanguard or T Rowe Price.