Financial PlanningRetirementTaxesDetermining Tax on Roth IRA Distributions in 5 Easy Steps

What are the ordering rules? Roth IRA distributions can consist of contributions, converted funds and
earnings – or any combination of the three. To determine what your distribution is, you must use “ordering
rules” which dictate the order in which these categories of Roth IRA money must be withdrawn.

All Roth IRAs are considered one Roth IRA for distribution purposes. A Roth IRA distribution will consist first of any Roth IRA contributions. If there are no contributions or those amounts are completely exhausted, the next funds out are converted funds. Once all converted funds have been exhausted, the remainder of the distributions will consist of earnings.

1. Are you withdrawing a contribution? Roth IRA contributions are the annual amounts that you contribute to a Roth IRA account. A distribution of Roth IRA contributions will always be both tax and penalty free.

2. Are you withdrawing converted amounts before age 59 ½? Converted funds are never subject to income tax. However, they will be subject to the 10% penalty for early distributions (unless an exception applies) if you are under 59 ½ and they have been in a Roth IRA for less than five years. Each conversion starts its own 10% penalty 5-year clock, and the converted amounts are withdrawn on a first-in, first-out basis.

3. Are you withdrawing converted amounts after 5 years or age 59 ½? A distribution of converted funds after 5 years or after age 59 ½ will be entirely income tax and penalty free.

4. Are you withdrawing earnings before age 59 ½? Earnings withdrawn prior to age 59 ½ are generally subject to income tax regardless of how long they’ve been in a Roth IRA account. Earnings withdrawn prior to age 59 ½ are also generally subject to the 10% penalty for early distributions unless an exception applies.

5. Are you withdrawing earnings after age 59 ½ and 5 years? Earnings withdrawn after age 59 ½ are never subject to the 10% penalty. They may, however, be subject to income tax. If you have held any Roth IRA for more than 5 years, your earnings are tax free. If not, they are taxable at 0ordinary rates.

This material was prepared by Ed Slott. Ed Slott is not affiliated with Bailey Wealth Services or LPL Financial.

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Holly Farrar

Client Services Associate

As director of First Impressions, I strive to make sure our clients have a comfortable and meaningful experience while providing remarkable customer service at the highest standards. I enjoy going to local Everett events and festivities while spending time with friends and family. I love to read, especially dystopian novels.  I am involved in volunteering opportunities within the community including grocery shopping for homebound people, coffee trailer and first responder appreciation.

Education and Biography

Training

Holly Studied Business and Management at Sno-Isle Business and Management & Everett Community College. She has over 20 years of customer service and administrative experience.

Specialisms

Holly’s focus is to create meaningful connections between our clients and our office. She schedules appointments, answers calls, processes transactions, preparing paperwork to maintain accounts as well as opening new accounts, and transfers.

Albert Ballesteros

With over 25 years of customer service working in the Financial Industry and the State of Washington, Albert is a welcome addition to the service team. He helps with opening new accounts and servicing current accounts. You have probably received appointment reminders from him. He also works with the marketing team in planning monthly letters to clients, planning special events and creating the weekly newsletters.
In his spare time, he volunteers at Northshore Christian Church, having completed two mission trips to the Philippines and has a passion for singing. He enjoys playing and watching most sports but is especially an avid fan of the Everett Silvertips.

Education and Biography

TRAINING

Albert attended Honolulu Community College where he obtained his AA in Liberal Arts.

SPECIALISMS

Albert joined Bailey Wealth Services in 2022. His focus is to provide support to both prospective and existing customers with exceptional customer service. He is very personable and brings professionalism to his role.

Wes Burroughs

One of the things I enjoy most about what I do is educating clients on what is available to them as an investor. Our clients know where they’re at financially and where they are going because we make breaking down the complexities of a constantly changing world a top priority. Outside of work, I love spending time with my wife, Blyn, and playing with our daughter, Sophia. I also enjoy running and hosting game night with friends.

Education and Biography

TRAINING
Wes attended Liberty University where he obtained his BA in Philosophy.

SPECIALISMS
Wes joined Bailey Wealth Services in 2021. His focus is helping families maintain and grow the wealth they already have. Wes enjoys working with our valued clients to facilitate financial relationships by providing solutions, solving problems, and helping them manage their financial lives.

A. Sean Bailey, CFP®

My mission is to assist families as they strive to acquire, accumulate and retain wealth in a tax efficient manner so they may live in retirement with confidence and dignity. When I’m not engaged in professional activities, you can find me on a mountain top with my wife, Kim, and our two children, Eleanor and Oscar.

Education and Biography

TRAINING
Sean received his Bachelor’s Degree in Business Administration, Finance Concentration, from the University of Washington.

SPECIALISMS
Sean Bailey has been in the financial services industry for 30 years. He specializes in developing comprehensive financial, estate and retirement planning strategies for clients nearing and in retirement. Sean is a Registered Principal and Investment Advisor with LPL Financial. He is a CERTIFIED FINANCIAL PLANNER™ Practitioner. Sean is also a member of the Financial Planning Association and Ed Slott’s Elite IRA Advisor Group.

Ed Slott’s Elite IRA Advisor Group is not affiliated with Bailey Wealth Services or LPL Financial.

Sonya Jones

I endeavor to provide excellent service to our clients and organizing processes and procedures to ensure our office runs smoothly. When not working, I enjoy spending time with my fiancé, Erik, and our two boys, Lukas and Archer along with our dog Pixie. I love cooking for them and experimenting with different recipes and techniques, including treats for Pixie. Our favorite family activity is taking road trips, especially to California to visit family and friends.

Education and Biography

TRAINING

 

Sonya received her BA in Art at California State University, Chico and has over 25 years of administrative and customer service experience in the financial services and accounting industries.

 

SPECIALISMS

 

Sonya’s focus is to help clients reach their financial goals by assisting them with their various transactions and paperwork to service and maintain their accounts. This includes opening new accounts and initiating transfers from and to financial institutions. Sonya is constantly looking for new ways to improve our processes to ensure we work efficiently and in a manner that creatives positive experiences for our clients.

Sonya Jones

I endeavor to provide excellent service to our clients and organizing processes and procedures to ensure our office runs smoothly. When not working, I enjoy spending time with my fiancé, Erik, and our two boys, Lukas and Archer along with our dog Pixie. I love cooking for them and experimenting with different recipes and techniques, including treats for Pixie. Our favorite family activity is taking road trips, especially to California to visit family and friends.

Education and Biography

TRAINING
Sonya received her BA in Art at California State University, Chico and has over 25 years of administrative and customer service experience in the financial services and accounting industries.

SPECIALISMS
Sonya’s focus is to help clients reach their financial goals by assisting them with their various transactions and paperwork to service and maintain their accounts. This includes opening new accounts and initiating transfers from and to financial institutions. Sonya is constantly looking for new ways to improve our processes to ensure we work efficiently and in a manner that creatives positive experiences for our clients.