Rules for liquidating roth ira

12-Nov-2017 19:08

You also convert ,000 from a traditional IRA into your Roth IRA.

Of that ,000, ,000 was taxable upon the conversion, and ,000 was not because it came from nondeductible IRA contributions. The first ,000 is free from tax and penalty because it’s a return of your contributions.

Since Roth contributions are made with after-tax dollars, you do not need to pay taxes on that portion again.

To calculate the portion of the withdrawal attributable to earnings, simply multiply the withdrawal amount by the ratio of total account earnings to account balance.

Even if your distribution is not for a “qualifying reason,” you may be able to escape the 10% penalty (but not ordinary income taxes) if any of the following situations apply: When applying each of the above rules, the IRS views all of your Roth IRAs together as one big Roth IRA.

For example, once you’ve met the 5-Year Rule for one of your Roth IRAs, you’ve met it for all of them.

Because contributions to a Roth plan are made with after-tax dollars, you do not need to pay income tax on qualified distributions, though you would still report them to the IRS on Form 1099-R when filing your taxes.

Though there really is not a no-strings-attached way to withdraw tax-free money from your Roth 401(k) before age 59 1/2, taking a loan from your account can be a quick way to use the funds for current needs without diminishing your retirement savings.

The next ,000 is assumed to come from the taxable portion of your converted amount.

As a result, it will be free from income tax, but it will be subject to the 10% penalty because the distribution occurred prior to the first day of the fifth year after the date of the conversion. I'm a CPA and the author of several personal finance books.

The whole point of an IRA (Roth or otherwise) is to save for retirement.

Unfortunately, things don’t always go as planned, and you may find yourself needing to withdraw money from your Roth IRA before age 59½.In 2015, you withdraw another ,000 from your Roth. The point of this blog is to show that investing doesn't have to be complicated.

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