Withdraw Roth IRA cost basis early

Withdraw Roth IRA cost basis early.
(I searched for:
roth cost basis site:discussion.fool.com “Tax Strategies”)

https://www.thebalance.com/how-different-roth-ira-withdrawal…

I have a Roth IRA with TD Ameritrade that I opened in 2012 by converting $38,600 from traditional IRA to Roth IRA. Of course I paid income tax on that conversion for tax year 2012.

I am younger than 59 1/2 and would like to withdraw this amount this year. I understand this amount to be my Roth IRA cost basis. And it should be tax and penalty free if I withdraw it prior to 59 1/2.

My question is do I need to do something special in withdrawal to make sure I can record this correctly in my tax return?

I called TD Ameritrade and they said no, just withdraw the money. Cost basis will show on the form they provide. It’s up to me to tell IRS this is part of cost basis. For example, what if I withdraw this amount every year for next few years before I turn 59 1/2. Of course only one will account as the cost basis.

I have this form already:
2012
Form 5498
“line 3 Roth IRA conversion amount $38,600”

My question is do I need to do something special in withdrawal to make sure I can record this correctly in my tax return?

You don’t need to do anything special when you do the withdrawal. You will use the 1099-R that you get from the broker to document the withdrawal on a Form 8606. That will be where you account for any contributions and/or conversions that you made to all of your Roth IRA accounts, so that you can show that your distribution is tax-free even though it’s not a qualified distribution.

For example, what if I withdraw this amount every year for next few years before I turn 59 1/2. Of course only one will account as the cost basis.

If you have no other Roth IRA contributions or conversions to distribute, you would use Form 8606 each year to document that your distribution is subject to taxes and penalties. You would then need to use Form 5329 to figure the penalties.

If you had planned to take a specific amount out annually before reaching 59 1/2, you could have done a Roth conversion ladder, where you did a conversion each year - converting the amount that you anticipated you would need in 5 years.

AJ

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You don’t need to do anything special when you do the withdrawal. You will use the 1099-R that you get from the broker to document the withdrawal on a Form 8606. That will be where you account for any contributions and/or conversions that you made to all of your Roth IRA accounts, so that you can show that your distribution is tax-free even though it’s not a qualified distribution.

Thanks AJ !

Surfnow - As AJ said, your tax basis can be withdrawn tax free from your Roth. However, once withdrawn, you have given up all the tax free earnings on that amount for the next x years. Those potential tax free dollars are gone forever.

So even though there is no current year tax on the Roth withdrawal, there is a huge opportunity cost by foregoing years or decades of tax free earnings.

There will be no current year taxes but the withdrawal is far from “free”.

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