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Suppose that I am over 59.5, I have earned income and make an allowable contribution to my Roth. Moreover, the Roth has been in existence for over 5 years. Now, I can have make qualified distributions from Roth.

Let's ignore the contribution, which muddies the qualified distribution issue. Once you're 59 1/2 and it's more than 5 tax years since your first Roth contribution to any account, all disributions from any Roth account are qualified. For life.

OK. Now suppose that I make one of these contributions to my Roth. I use those funds to buy 100 shares of XYZ. But within a matter of months (or maybe 2 or 3 years), I sell the 100 shares of XYZ and have the proceeds sent to me. Wouldn't that count as a qualified distribution?

Yes, but again, all the who shot John about what you did within the Roth is totally irrelevant.

Here's my personal money laundering experience from a couple of years ago. At the time I was over 59 1/2 and my Roth was more than 5 years old. Since I was not covered by a retirement plan at work, traditional IRA contributions were deductible at any income level. After I prepared my 2009 return in March 2010 I found, to my distress, that I was $5,900 and change over the top of the 15% bracket. I noted that I had--just barely--$6,000 of earned income for 2009. I had $6,000 in my savings account, but I was going to need it during the year. So...

Monday: Did an electronic $6,000 2009 contribution from my savings account to my traditional IRA.

Tuesday: Converted $6,000 cash from traditional to Roth.

Wednesday: Took a $6,000 cash distribution from my Roth into my savings account.

That took care of my 2009 problem. As a bonus, since it was a 2010 conversion, I had no taxable income from the conversion in 2010. Bottom line: I moved $6,000 of income from 2009, where it would have been almost entirely taxed at 25%, to 2011 and 2012, where it is taxed at 15%.

Seems right -- but also seems to work in my favor (which makes me suspicious ...)

Shame on you. We all know that the Congresscritters have only our best interests in mind at all times. Just ask them.

Rule Your Retirement Home Fool
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