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Subject:  Re: Roth IRA Date:  2/6/1998  8:56 AM
Author:  TMFPixy Number:  1648 of 88495


<<In today's Tax Strategy column by Roy Lewis at there seems to be a contradiction:

"Example 1: Jim, age 35, makes a qualified rollover contribution from his regular IRA to a Roth IRA in the amount of $60,000 on December 30, 1998. Jim is required to spread this income over a four-year period, and is required to report $15,000 per year in 1998, 1999, 2000, and 2001. In January 2003, Jim takes a principal distribution of $40,000. Jim will not be assessed any tax or penalty on this distribution. Why? Because the five-tax year exception has been met.

Example 2: Same facts as above, but assume that Jim takes this $40,000 distribution in 2002. Jim will pay no income tax on this distribution. But, since the five-tax year period was not met, and assuming that none of the penalty exceptions are met, Jim WILL pay a 20% early withdrawal penalty of $8,000 on this distribution. This 20% represents the normal early withdrawal penalty of 10% PLUS the additional 10% early withdrawal penalty assessed against 1998 rollovers."

Roy keeps talking about that five-year period, even when speaking of contributions. Therefore, I'm still not getting it.<g> >>

Read Example 1 again. Note that you're missing the fact Roy is talking about a CONVERSION Roth IRA. The rollover of the traditional IRA to this account is technically a "contribution." The rollover "contribution" under the technical corrections now pending in Congress may NOT be touched for five years or a penalty will result. Additionally, the CONVERSION Roth IRA must be a separate account from any CONTRIBUTORY Roth IRA based on guidance received from the IRS. A CONTRIBUTORY Roth IRA is one to which you may contribute up to $2K per year. In the CONTRIBUTORY IRA, you may take the contributions - but not the earnings - at any time without penalty.


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