Ask Terry Questions Eligible withdrawals from a Roth IRA

Eligible withdrawals from a Roth IRA

By Terry Savage on September 26, 2023 | Wild Card

I look forward to your weekly Wednesday noon visits with John Williams on WGN radio. I missed this past Wednesday, Sept 20 program and listened to the segment today. You had a call from a 63 year old woman asking about what to do with about $150,000 cash she had in her IRA. She was thinking of taking a home equity loan or moving her IRA balance into a Roth IRA and then take the money from the Roth. The caller said she would soon need about $10,000. You said “you don’t need to move it into a Roth because you’ll have to wait 5 years after an account has been established before you can take it out.” I believe though that the 5 year wait rule on withdrawals from a newly created Roth IRA applies to earnings only. A person can withdraw the principal amount that was converted at any time, tax-free. In this case the $10,000 the caller would soon be needing could be withdrawn immediately as it would be considered part of the $150,000 (less any taxes due on withdrawal) converted. You may want to verify this as it may affect the caller’s decision on how to meet her needs in considering a Roth option as well as the other options and considerations you suggested.

Terry Says

You are absolutely correct and I should have stated it that way! But basically, I was trying to make sure she avoided paying current taxes on a withdrawal — either directly from her IRA or upon conversion. I was concerned about theimpact on her tax breacket, and on the IRMAA adjustment of her Medicare Part B premium if she did a Roth conversion.
It’s tough to advise seniors these days — many stuck in a no-win situation of using up their savings now to keep living in their homes. It’s why I always suggest that this won’t be the only expense in coming years, and this might be a good time to consider a move.
Thanks so much for writing in.



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