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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75801  
Subject: Re: Roth and excess distributions Date: 10/16/1997 3:14 PM
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Greetings, Roger, and welcome to Fooldom.

<<I'm 36 and concerned about excess distributions penalties when I start withdrawing money from my 403(b). My forecast distribution if I start taking money out at age 59 1/2, with a 10.5% return on a pure-stock portfolio, is well over $150k per year even if indexed for 3% inflation. What little there is about the Roth seems to say that the profits on any money moved into a Roth will not count toward the excess distributions threshold. Does anyone know yet if this is correct? I know I have to change jobs to move money to the Roth, but that is already part of my plans. Any other suggestions for reducing this penalty, besides investing poorly?>>

Rest easy, Roger. As part of the Taxpayer Relief Act of 1997, Congress repealed the excess distributions tax and the excess accumulations taax in their entirety. You are free to take as much as you want from the 403b as long as you pay ordinary income tax on that sum when you do.

As to the Roth, any money (rollover or annual contribution) that goes into it is taxed before it's deposited. While there, the earnings on those sums grow tax free. When the money comes out, it is all tax free. It does not have to come out at age 70 1/2. And it is not subject to income tax by your heirs should you die. It could, though, be subject to estate tax if it exceeds the unified credit level in effect in the year of death.

And BTW, retirement plan monies may not be rolled to a Roth. It's a quirk in the law. They can only be rolled to a regular IRA. Once there, though, that IRA can be rolled to a Roth provided all taxes due are paid. Do so in 1998, and you have four years to pay the taxes due. In 1999 and later, the taxes are due in total in the year of the rollovert o the Roth.

Regards.......Pixy
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