Roth Distribution and Re-Contribution

ROTH established in 2007. $7,000 distributed/withdrawn in March, 2014 to fund down payment on first time home purchase.
Earnings likely not subject to tax or 10% penalty cause of 5 year rule. Now he wants to contribute $7,000 back into the ROTH in 2014 AND contribute $5,500 for 2014 contribution. Allowed or excessive. ??

Excessive, 60 days to roll over into a new account.

What is this 5 year rule you are talking about?

What is this 5 year rule you are talking about?

If the account only holds funds from a conversion, you must let the account simmer 5 years.

If the account only holds amounts that are contributed, you can w/d the contributed amounts at any time without penalty. If the account contains both, there are ordering rules. I think that contributed amounts are deemed distributed first.

Publication 590 "A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. 1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit and 2.The payment or distribution is:... d. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit)." (Note that I left out a,b,c)

So not sure what Doug M is talking about that "you can w/d the contributed amounts at any time without penalty."

What is this 5 year rule you are talking about?

If the account only holds funds from a conversion, you must let the account simmer 5 years.

If the account only holds amounts that are contributed, you can w/d the contributed amounts at any time without penalty. If the account contains both, there are ordering rules. I think that contributed amounts are deemed distributed first.

Oh I will tell you what Doug is talking about because it's really important. If you can take out contributions via the ordering rules, do it. If you can take out conversion basis that has met the 5 year holding period, I would do that.

Generally you only want to use the FTHB exclusion if your ordering rules are requiring you take out earnings. And then I would do it on the (Form 8606 Part III, line 20) only to the extent there were earnings withdrawn.

The reason for that is because the exclusion is only a deferral if in the future you ever take another nonqualified distribution you are required to reduce your basis by any previous FTHB distributions. Thus follow the ordering rules and only use FTHB if necessary.

Joan-you are looking at the rules for "qualified distributions".

Go one page further in the pub (go to page 73) to the title that says "Ordering Rules For Distributions" and you will see what I am referring to.

Thanks Doug, I found it in the Pub and worked through it. I should have responded!