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Subject:  Re: Roth IRA question Date:  6/30/2020  1:22 AM
Author:  TMFBigFrog Number:  130835 of 131086

Hi esxokm -

That’s a lot of questions in one post. Let me try to capture the highlights, but feel free to chime in if you need more information. In addition, I’m sure I’m covering the ‘80 for 20’ instead of getting into all the nitty gritty details.

This chart at the IRS has more details: , and there’s lots of other good and easily digestible info on the IRS site as well.

A key reason to tell your tax preparer when you contribute to your Roth IRA is that if you ever need to make withdrawals from the Roth IRA account before retirement age, your direct contributions to your Roth IRA are the first things you withdraw. Those contributions can be withdrawn without tax or penalty, but you have to have clear records of the contribution in case the IRS wants to charge you a tax and/or penalty on it.

Roth style accounts, both IRA and 401(k), take your contributions with after tax dollars and offer you tax free qualified withdrawals once you reach retirement age. The early withdrawal rules are a bit different between the two account types. In addition, Roth 401(k) plans are subject to RMDs at age 72, while Roth IRAs are not. It is generally possible to be able to contribute to both a Roth IRA and a Roth 401(k) in the same year, but you may run into income limits on the Roth IRA contribution.

As for a traditional and Roth 401k at work, yes, if your employer offers both options, you can contribute to one, the other, or both, but your total contribution you your 401(k) style plans are limited per person per year, not per account per year. The typical limit in 2020 is $19,500 if you’re under 50 or $26,000 If you’re 50+, but you may be subject to lower contribution limits based on the details of your employer’s plan, your total salary, and whether you’re considered a highly compensate employee. Traditional IRAs are tax deductible when you contribute but come out as ordinary income in retirement.

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