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February 16, 2009

Ordering rules-Roth IRA

Your Guide

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Definition

The order in which amounts attributed to contributions, conversions and earnings are considered to be distributed from a Roth IRA.

The ordering rules are applied when a distribution from a Roth IRA is not a qualified distribution, and helps to determine the portion of the nonqualified distribution that is subject to income tax and/or the early distribution penalty.

According to the ordering rules, distributions from a Roth IRA occur in the following order:

    1. From regular contributions first. After all regular contributions have been distributed , then
    2. From conversion amounts, on a first-in-first-out basis; and after all conversion amounts have been distributed,
    3. From earnings

For amounts attributed to conversions, if the conversion included taxable and nontaxable amounts, the distribution is deemed to occur from the taxable portion first.

Referring Cite

IRC §408A(d)(4); Treas. Reg. §1.408A-6, Q&A-8;

Additional Helpful Information

For purposes of the ordering rules, additional rules apply, which include the following :

  • Distributions from all an individual’s Roth IRAs made during a taxable year are aggregated.
  • All regular contributions made for the same taxable year to all the individual’s Roth IRAs are aggregated and added to the undistributed total regular contributions for prior taxable years.
  • All conversion contributions received during the same taxable year by all the individual’s Roth IRAs are aggregated.
  • A distribution from an individual’s Roth IRA that is rollover eligible, and rolled over within the 60-day period is disregarded

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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