• user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:6427e3f9d51b13cf4000648402152069' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<h1>Ordering Rules</h1>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:6427e3f9d51b13cf4000648402152069' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:892e0c21bc49b78fe3497a9c331daeed' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<h2>What are Roth IRA Ordering Rules?</h2><p>When it comes time to taking a <a href=\"/personal-finance/roth-ira/roth-ira-withdrawal.html\" title=\"Roth IRA withdrawal\">Roth IRA withdrawal</a>, the IRS has established <b class=\"normalize\">ordering rules</b> which guide the order of distributing funds within your Roth IRA, for the purposes of tax reporting.&nbsp; These rules are put in place to order the sequence of distributions from various funding sources within your <a href=\"/personal-finance/roth-ira/index.html\" title=\"Roth IRA\">Roth IRA</a>; such as: Roth IRA contributions, Roth IRA conversions, rollover IRA amounts, and earnings as well.&nbsp; At retirement, you may have $200,000 in your accounts; however, this amount may consist of a variety of different funding sources, each of which may carry different tax consequences when withdrawn.</p><p>The <b class=\"normalize\">IRS ordering rules</b> apply to your Roth IRA accounts in aggregate.&nbsp; For example, if you have three Roth accounts at three different financial institutions, you will need to add up the various buckets across the three accounts, which we discuss below.&nbsp; Using our example from above, if you have $200,000 across 3 different accounts, you will need to split them out into buckets as we have detailed below.&nbsp; IRA 1 may have $20,000 in contributions, while IRA two and three may only have $10,000 each.&nbsp; Using this simple scenario, the first $40,000 that you withdraw from all of your Roth IRAs (in aggregate) will be considered tax and penalty free.&nbsp; Remember, this is only for classification purposes on your tax return.&nbsp;&nbsp;</p><p>While we are not able to select the source of funds which we want to distribute, the IRS ordering rules are designed to work to your advantage.&nbsp; Let&rsquo;s review the <b class=\"normalize\">Roth IRA ordering rules</b> in more detail.</p><ul><li>Any&nbsp;amounts related to a&nbsp;<a href=\"/personal-finance/roth-ira/roth-ira-contribution.html\" title=\"Roth IRA contribution\">Roth IRA&nbsp;contribution</a>&nbsp;will be withdrawn first from the account.&nbsp; Say you contributed $40,000 into a Roth IRA over the last 10 years and you plan on distributing $2,000 a month to support your retirement; you will be able to withdraw tax free and penalty free, for 25 months.<br />&nbsp;</li><li>After your contributions have been withdrawn, conversions and rollover amounts will come out next.&nbsp; This is done using a FIFO (first in first out) system, where the first conversion (or rollover) will come out first.&nbsp; <br />&nbsp;</li><li>In some cases, you may be converting a traditional IRA which has both deductible and non-deductible contributions.&nbsp; According to the Roth IRA ordering rules, the taxable contributions will come out first. <br /><br />In the scenario where you perform a <a href=\"/personal-finance/roth-ira/roth-ira-conversion.html\" title=\"Roth IRA contribution\">Roth IRA conversion</a> at the end of the one year and contribute those funds into a Roth IRA in the following year (before the tax deadline), the Roth IRA ordering rules positions this conversion before any rollovers or conversions which are performed in the following year.<br />&nbsp;</li><li>The remaining amount represents the earnings in the account and these come out last.&nbsp; Keep in mind that earnings withdrawn in relation to an excess contribution which was made to a Roth IRA is excluded for the purposes of these ordering rules.</li></ul><p>The benefits provided through the ordering rules can be quite beneficial to the investor, even if they perform a distribution prior to it being qualified.&nbsp; The fact that they can withdraw contributions first may actually buy some time to qualify other amounts for tax free and penalty free distributions.&nbsp; For example, if you do not meet the 5 year holding period or if you are not of the age of 59.5 for another year, you can still withdraw money without paying the piper.</p> <hr />&lt;&lt; Part 1 - <a href=\"/personal-finance/roth-ira/index.html\" title=\"Roth IRA contribution\">Roth IRA Overview</a><br />&lt;&lt; Part 2 - <a href=\"/personal-finance/roth-ira/roth-ira-contribution.html\" title=\"Roth IRA contribution\">Roth IRA Contribution</a><br />&lt;&lt; Part 3 - <a href=\"/personal-finance/roth-ira/roth-ira-conversion.html\" title=\"Roth IRA \nconversion\">Roth IRA Conversion</a><br />&lt;&lt; Part 4 - <a href=\"/personal-finance/roth-ira/roth-ira-withdrawal.html\" title=\"Roth IRA withdrawal\">Roth IRA Withdrawal</a><br />Part&nbsp;6 - <a href=\"/personal-finance/roth-ira/recharacterization.html\" title=\"Recharacterization\">Recharacterization</a> &gt;&gt;', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:892e0c21bc49b78fe3497a9c331daeed' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:2fda152348bc4ae73408bf0b82608e9a' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<p>Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide to navigating through the markets.</p><p>Tim is in the Timers Digest Top 10 Rankings for his newsletter and is the Author of \"The Secret Science of Price and Volume”. Ord also contributes to the Stocks &amp; Commodities Magazine.</p>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:2fda152348bc4ae73408bf0b82608e9a' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:4dd69529abed14a5c1c8f3ba7e22f8eb' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<p>Tradingsim.com provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for every symbol on the Nasdaq, NYSE, and AMEX.</p><p>Use the fast forward and pause features to analyze your trading decisions with more precision.</p>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:4dd69529abed14a5c1c8f3ba7e22f8eb' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:151e49b034b3ac8a98c1331980da8b69' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<h2>Related Videos</h2>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:151e49b034b3ac8a98c1331980da8b69' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:e6ff5fe7efa34d641d697991ec512c61' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<h2>Related Articles</h2>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:e6ff5fe7efa34d641d697991ec512c61' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '4:64dc950e564b7bb494892459d2858add' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<div class=\"left\">\n <p>copyright &copy; 2011 MYSMP.com. All rights reserved.</p>\n <a href=\"/\">Home</a> • <a href=\"/advertise\">Advertise</a> • <a href=\"/sitemap\">Sitemap</a> • <a href=\"/privacy-policy\">Privacy Policy</a>\n</div>\n\n<div class=\"right\">\n <p>Designed &amp; Developed by: bxCreative.com: <a target=\"_blank\" href=\"http://bxcreative.com\">Web design</a></p>\n</div>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '4:64dc950e564b7bb494892459d2858add' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:ef414e50ef3bcd60831c79a8ccac7f37' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<h2 class=\"pane-title\"><a href=\"/investment-articles\">Investment Articles</a></h2><h2 class=\"pane-title\"><a href=\"/premium-services\">Premium Services</a></h2> <h2 class=\"pane-title\"><a href=\"/free-offers\">Free Offers</a></h2> <h2 class=\"pane-title\"><a href=\"/video\">Videos</a></h2>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:ef414e50ef3bcd60831c79a8ccac7f37' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:7ab206dca588aa9858fab14b55f27503' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<p>16192 Coastal Highway<br />\nLewes, Delaware 19958</p>\n', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:7ab206dca588aa9858fab14b55f27503' in /var/www/html/mysmp/includes/cache.inc on line 109.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: SELECT data, created, headers, expire, serialized FROM cache_filter WHERE cid = '1:fb9bc3d8197c3f70b5a896cc8bae29d6' in /var/www/html/mysmp/includes/cache.inc on line 26.
  • user warning: Table './mysmp_drupal/cache_filter' is marked as crashed and should be repaired query: UPDATE cache_filter SET data = '<a href=\"/\"><img src=\"/sites/all/themes/bx/images/logo.png\" /></a>', created = 1576433480, expire = 1576519880, headers = '', serialized = 0 WHERE cid = '1:fb9bc3d8197c3f70b5a896cc8bae29d6' in /var/www/html/mysmp/includes/cache.inc on line 109.

Ordering Rules

What are Roth IRA Ordering Rules?

When it comes time to taking a Roth IRA withdrawal, the IRS has established ordering rules which guide the order of distributing funds within your Roth IRA, for the purposes of tax reporting.  These rules are put in place to order the sequence of distributions from various funding sources within your Roth IRA; such as: Roth IRA contributions, Roth IRA conversions, rollover IRA amounts, and earnings as well.  At retirement, you may have $200,000 in your accounts; however, this amount may consist of a variety of different funding sources, each of which may carry different tax consequences when withdrawn.

The IRS ordering rules apply to your Roth IRA accounts in aggregate.  For example, if you have three Roth accounts at three different financial institutions, you will need to add up the various buckets across the three accounts, which we discuss below.  Using our example from above, if you have $200,000 across 3 different accounts, you will need to split them out into buckets as we have detailed below.  IRA 1 may have $20,000 in contributions, while IRA two and three may only have $10,000 each.  Using this simple scenario, the first $40,000 that you withdraw from all of your Roth IRAs (in aggregate) will be considered tax and penalty free.  Remember, this is only for classification purposes on your tax return.  

While we are not able to select the source of funds which we want to distribute, the IRS ordering rules are designed to work to your advantage.  Let’s review the Roth IRA ordering rules in more detail.

  • Any amounts related to a Roth IRA contribution will be withdrawn first from the account.  Say you contributed $40,000 into a Roth IRA over the last 10 years and you plan on distributing $2,000 a month to support your retirement; you will be able to withdraw tax free and penalty free, for 25 months.
     
  • After your contributions have been withdrawn, conversions and rollover amounts will come out next.  This is done using a FIFO (first in first out) system, where the first conversion (or rollover) will come out first. 
     
  • In some cases, you may be converting a traditional IRA which has both deductible and non-deductible contributions.  According to the Roth IRA ordering rules, the taxable contributions will come out first.

    In the scenario where you perform a Roth IRA conversion at the end of the one year and contribute those funds into a Roth IRA in the following year (before the tax deadline), the Roth IRA ordering rules positions this conversion before any rollovers or conversions which are performed in the following year.
     
  • The remaining amount represents the earnings in the account and these come out last.  Keep in mind that earnings withdrawn in relation to an excess contribution which was made to a Roth IRA is excluded for the purposes of these ordering rules.

The benefits provided through the ordering rules can be quite beneficial to the investor, even if they perform a distribution prior to it being qualified.  The fact that they can withdraw contributions first may actually buy some time to qualify other amounts for tax free and penalty free distributions.  For example, if you do not meet the 5 year holding period or if you are not of the age of 59.5 for another year, you can still withdraw money without paying the piper.


<< Part 1 - Roth IRA Overview
<< Part 2 - Roth IRA Contribution
<< Part 3 - Roth IRA Conversion
<< Part 4 - Roth IRA Withdrawal
Part 6 - Recharacterization >>
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

Tradingsim.com
Day Trading Simulator

Tradingsim.com provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

Send this article to a friend.

Enter multiple addresses on separate lines or separate them with commas.