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|Subject: Roth IRA||Date: 1/10/2001 5:29 PM|
|Author: numike||Number: 6012 of 19257|
Pixy helped me out so I thought that I would post my email for all to see :-( .
"I was under the impression that we do not pay income tax on the earnings of a Roth IRA once we are 59 1/2 and over. Your most recent Fools & Retirement did not seem to take that into consideration. Did I miss something?"
Yes I did! a little math...
"" That's correct, and the tables in the piece were computed that way. Taxes on the Roth are paid at the time of conversion only.
As an example, in the first table, and after conversion, $41,677 is left in the Roth earning 9% per year. In five years, that grows to $64,110 as the
table shows under the 15% column. It all may be taken free of tax. If left in the traditional IRA, the entire $50K grows to $76,931. Taxed at 15%, that leaves a net of $65,392 after taxes as shown in the table.
So I had a bright idea (famous last words).
I ran a few numbers (like I should have) using my handy HP 12C. If the return is a lot greater than 9% the Roth seems to look more attractive for the 15% tax rate (please correct me if I am wrong). Since I can not convert my IRA to a Roth IRA (even if I wanted too) I opened an Ameritrade Roth IRA for $2000 and bought a rule maker stock (after careful research, of course). I am hoping that in 10 years (when I am 66) it will be about $8,823 tax free! If this works out to be a good strategy I will do this each year for the next 9.
Thanks for your input.
(P.S. how do I Italicize text? I can't find the link)
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