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Roth IRA Ordering Rules for Withdrawals

What are the Roth IRA ordering rules for withdrawals?

You need to know, because when it comes time to take a distribution from your Roth IRA, you can NOT treat all of the funds in your account equally.


Because the IRS has established a set order in which the funds in your Roth IRA must be withdrawn.

Basically, withdrawals must occur in the following order (in order of first funds out)...

1) Principal contributions
2) Conversion and rollover contributions
3) Investment earnings

So let's examine each category of distributions on an individual basis...

Principal Contributions

The Roth IRA ordering rules require you withdraw your original principal contributions before withdrawing any other types of funds.

And since you made your original Roth IRA principal contributions with after-tax dollars, withdrawals are NOT subject to income taxes or the 10% early withdrawal penalty.

For instance, let's say you open a Roth IRA and over the course of 3 years, you fund it to the tune of $2,500, $3,500, and $5,000 for a grand total of $11,000. In year 4, your Roth IRA has a total value of $15,500.

Under IRS rules, you can withdraw up to $11,000 tax-free and penalty-free regardless of age or other circumstances.


Because your original Roth IRA principal contributions must come out first, and those funds are not subject to taxes or penalties.

Only after you've exhausted every penny of your original principal contributions can you even begin to entertain the idea of withdrawing conversion contributions or investment gains, events which might very well trigger taxes and penalties...

Conversion and Rollover Contributions

After you've withdrawn all of your original principal contributions, next on the list of Roth IRA ordering rules are your conversion or rollover contributions.

If you've never performed a conversion or rollover into your Roth IRA, then don't worry about this.

But if you have performed a Roth IRA conversion or rollover, these contributions are next on the list to be withdrawn. And they must come out of your account on a first-in-first-out basis, meaning conversions and rollovers from the earlier years come out prior to those from more recent years.

And Roth IRA ordering rules even govern the withdrawal order of the taxable and non-taxable portions of your conversion and rollover contributions. According to the IRS, you need to withdraw your conversion and rollover contributions in the following order:

1) The Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then...

2) The Nontaxable portion

Once you've exhausted all of your original principal contributions and your taxable and non-taxable conversion and rollover contributions, then...

You can finally withdraw the investment gains you earned on your original principal contributions.

Investment Earnings

Under the terms of the Roth IRA ordering rules, you can only withdraw investment gains after your principal contribution as well as your taxable and non-taxable conversion and rollover contributions are withdrawn first.

Unless you meet one of the special exceptions, such as the first-time home buyer exemption, you need to be at least 59 ½ years old and meet the requirements of the 5 year rule before you can withdraw investment gains tax-free and penalty-free.

Since your investment gains are the last funds to be withdrawn from your Roth IRA, hopefully this will happen late in your retirement years, long after you've met the aforementioned requirements. Otherwise, you're missing a valuable opportunity to save for retirement.

For example, suppose you open and fund a Roth IRA at age 22. Over the course of several years, you contribute $20,000 in annual principal contributions. At age 36, your Roth IRA is worth $30,000, and because of a dire family emergency, you decide it's in your best interest to close the account...

What happens?

Well, following the Roth IRA ordering rules, your original principal contributions are withdrawn first. That covers $20,000 of the $30,000 in your account. So the first $20,000 lands in your pocket tax-free and penalty-free.

Next would be any conversion or rollover contributions, which in this case, you don't have.

And last comes your $10,000 in investment gains.

Even though you meet the requirements of the 5 year rule, since you're not age 59 ½ or older, your withdrawal is a non-qualified distribution. As a result, your withdrawal triggers an income tax liability and a 10% early withdrawal penalty on the $10,000 in investment gains.

Does that make sense?


The IRS outlines a series of Roth IRA ordering rules you must follow when making a withdrawal (distribution) from your account. Those rules require funds to be removed in the following order...

1) Principal contributions
2) Conversion and rollover contributions
3) Investment earnings

Principal contributions are never subject to income taxes or early withdrawal penalties, because you made those contributions with after-tax dollars.

However, the remaining funds in your account may be subject to income taxes and a 10% early withdrawal penalty depending on the circumstances surrounding the withdrawal.

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