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Stephanie writes:

<<If i understood you correctly that sounded like good news/bad news..I can take early withdrawls under the SEPP rules however will have to pay regular income tax rates until i'm 59 1/2. So during the years that i am retired before 59 1/2 it's wroking like a traditional IRA except i didn't get a tax break on the contributions. I had pie in the sky hopes of tax free withdrawls >>

Remember I said you may take your contributions at any time for any purpose free of income taxes and penalty. In a Roth, 72t rules only apply after/b> you have used up all your contribution money so all that's left in the Roth is earnings. Those under the age of 59 1/2 may use SEPP rules to take them and escape the 10% early withdrawal excise tax, but they will not be able to take the earnings without paying income tax.

Example: You retire at 50 with $50K in a Roth. During the years you contrbuted $10K. The first year you want $10K to live on, so you take it from the Roth. You pay no taxes and no penalty. In year two the Roth is worth $44K and you want to take money from it. You used up all of your contribution money in the previous year, so all that's left is earnings. Now you must use 72t rules to avoid the 10% penalty; however, you will not avoid income tax on whatever you take. In that sense, then it's like a traditional IRA, but in a traditional you would have had to use 72t rules even in the first year. Hence with a Roth you do get a little leeway from taxation based on the withdrawal ordering rules.

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