Taking Orderly Withdrawals From Your Roth IRA

Article Summary:

  • There is a specific order to which the distributions are attributed in your Roth IRA
  • If your distributions are not qualified, you may be subject to a 10% penalty
  • The first order of distributions go to excess contributions

You may never have thought about this, but when you start to take money out of your Roth IRA account(s), there is a specific order to which the distributions are attributed.  You might not think it makes any difference, but in some cases it does – specifically as it applies to any distributions that are not qualified.

Of course, by qualified, the IRS means any distributions that are made after the account has been established for 5 years and one of the following: 1) when you are at least age 59½ years of age; 2) if the distribution falls under the exception for a first time home purchase; 3) the distribution occurs due to the account owner’s complete disability; or 4) the distribution occurs after the death of the account owner.  There are other exceptions, which you can read about in the article – Exceptions to the IRA Early Withdrawal Penalty.

Otherwise, your distribution could be subject to the 10% early withdrawal penalty – but this is where the ordering rules come in.  As you know, commonly your Roth IRA distributions are considered to be tax-free – but this is only when they are qualified distributions (as mentioned above).  When you take money out of your Roth IRA account in a non-qualified fashion (e.g., prior to age 59½), a portion of the distribution may be subject to penalty.

Ordering Rules

You may recall that, since there is no special tax treatment (i.e., no deduction) for your regular Roth IRA contributions, you can withdraw these contributions at any time for any reason.  This is the first part of the IRS’ special ordering rules.  Withdrawals from your Roth IRA account are attributed as follows:

  1. Excess contributions
  2. Regular contributions
  3. Conversion and rollover contributions, on a first-in first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, below. Take these conversion and rollover contributions into account as follows:
    1. Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the
    2. Nontaxable portion.
  4. Earnings on contributions.

Disregard rollover contributions from other Roth IRAs for this purpose.

Aggregation (grouping and adding) rules. Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows.

  • Add all distributions from all your Roth IRAs during the year together.
  • Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. Add this total to the total undistributed regular contributions made in prior years.
  • Add all conversion and rollover contributions made during the year together. For purposes of the ordering rules, for example, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2010 and the conversion or rollover contribution is made in 2011, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2011.

Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA.

Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose.


So, with the above ordering rules in mind, as you take money out of your Roth IRA, only the part that represents the growth in the account, plus any amount that was converted less than five years prior, will be subject to the 10% penalty.  These funds are the last in the ordering process, you won’t be charged the penalty until you get to those amounts in your account.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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