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Investing/Strategies / Retirement Investing
|Subject: Re: Roth IRA withdrawl||Date: 5/30/2000 10:01 AM|
|Author: TMFPixy||Number: 22259 of 77297|
<<Let's see if I understand the Roth distribution rules. Contributions to a Roth are treated different from converted IRA's and gains. Contributions may be taken out of a Roth for any reason at any time without taxes or penalty.>>
<< Converted IRA funds and gains can be removed tax-free and penalty free if the Roth is over 5 years AND you are 59 1/2 or older, which ever is longer.>>
Actually, conversion contributions (ignoring those made in 1998 using the four-year rule) may be taken at any time free of taxes; however, if taken before five tax-years go by, then the 10% early withdrawal penalty must be paid if the the owner is younger than age 59 1/2. Gains may be taken penalty and tax-free when the account has been open five tax-years AND the owner is older than 59 1/2. For gains, if the owner is older than 59 1/2 BUT the account has not been open for five tax-years, then income taxes must be paid on any gains taken.
<<I believe qualified distrubtions from a Roth (Tax free & penalty free) may be taken for Medical, Educational, and 1st time home purchase. I am unsure of the limitations for these distributions.>>
A qualfied distribution for Roth purposes is one that may be taken free of tax and penalty after the account has been open for five tax-years and under the following conditions:
a. After age 59 1/2.
b. On death or disability.
c. Before 59 1/2 for a first-home purchase subject to the $10K lifetime limit.
All other early IRA exceptions apply for penalty avoidance on gains, but income taxes must be paid on the sum taken. An example would be the withdrawal of any gains to pay for medical or education expenses before age 59 1/2. The penalty is avoided, but just as in a traditional IRA, income taxes are due on any gains taken.
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