Comments on: Roth IRA Withdrawal Rules http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/ Index Investing: The Oblivious Investor Fri, 12 Mar 2010 19:19:14 -0600 http://wordpress.org/?v=2.9.2 hourly 1 By: Mike http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4278 Mike Sat, 26 Dec 2009 15:12:14 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4278 Hi S.Max. My understanding is that if you are over 59.5 and you've had a Roth open for more than 5 years, any distribution will be a qualified distribution and will therefore be free from tax and penalty. For more information see "Are Distributions Taxable?" and "What Are Qualified Distributions?" from <a href="http://www.irs.gov/publications/p590/ch02.html#en_US_publink10006523" rel="nofollow">IRS Publication 590</a>. Hi S.Max.

My understanding is that if you are over 59.5 and you’ve had a Roth open for more than 5 years, any distribution will be a qualified distribution and will therefore be free from tax and penalty.

For more information see “Are Distributions Taxable?” and “What Are Qualified Distributions?” from IRS Publication 590.

]]> By: S.Max http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4276 S.Max Sat, 26 Dec 2009 00:14:58 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4276 It is possible that you may have already addressed the concerns I am raising here; for some reason I am still not very clear if the rule re. each conversion having its own 5-yr clock. I will certainly appreciate your addressing the particular case I have outlined below. I am 60 yrs old. I opened my first Roth in 2005. I have contributed to the Roth regularly every year since. In 2008 and 2009 I also converted some funds from the Rollover IRA. My Question: Since I am past 59 ½ and will have had my first Roth open for 5 year by Jan 2010, will my distribution (both the contribution and the earnings on the converted/contributed amounts) be considered qualified distribution in 2010 and beyond? Or do the earnings on the converted asset have to meet the five-year clock before I withdraw them tax and penalty free? It is possible that you may have already addressed the concerns I am raising here; for some reason I am still not very clear if the rule re. each conversion having its own 5-yr clock. I will certainly appreciate your addressing the particular case I have outlined below.

I am 60 yrs old. I opened my first Roth in 2005. I have contributed to the Roth regularly every year since. In 2008 and 2009 I also converted some funds from the Rollover IRA.
My Question: Since I am past 59 ½ and will have had my first Roth open for 5 year by Jan 2010, will my distribution (both the contribution and the earnings on the converted/contributed amounts) be considered qualified distribution in 2010 and beyond? Or do the earnings on the converted asset have to meet the five-year clock before I withdraw them tax and penalty free?

]]> By: Mike http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4269 Mike Thu, 24 Dec 2009 20:33:32 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4269 Maria: From <a href="http://www.irs.gov/retirement/sponsor/article/0,,id=151926,00.html" rel="nofollow">the IRS's website</a>: "The loan must be repaid within 5 years, unless the loan is used to buy the participant’s main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan." It seems to me that if you're set on not taking out any loans, it might make more sense to simply use Roth money (at least to the extent of your Roth contributions) to pay the education expenses in the first place. Maria: From the IRS’s website:

“The loan must be repaid within 5 years, unless the loan is used to buy the participant’s main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.”

It seems to me that if you’re set on not taking out any loans, it might make more sense to simply use Roth money (at least to the extent of your Roth contributions) to pay the education expenses in the first place.

]]> By: maria http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4268 maria Thu, 24 Dec 2009 17:58:32 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4268 follow up-I meant can I take my roth ira and then use it to pay off my loan, would that make more sense? (Sometimes I confuse myself) follow up-I meant can I take my roth ira and then use it to pay off my loan, would that make more sense? (Sometimes I confuse myself)

]]> By: maria http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4267 maria Thu, 24 Dec 2009 17:56:45 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4267 Hi, I am 53 years old and getting ready to pay for college for daughter. Financial aid wasn't enough and I don't want us to have a bunch of loans. I need about 40k. If I take it out I will be penalized, but if I borrow against my retirement plan and then pay then in one lump sum when I hit 591/2, does that make more sense? Hi,
I am 53 years old and getting ready to pay for college for daughter. Financial aid wasn’t enough and I don’t want us to have a bunch of loans. I need about 40k. If I take it out I will be penalized, but if I borrow against my retirement plan and then pay then in one lump sum when I hit 591/2, does that make more sense?

]]> By: pat dauria http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4178 pat dauria Wed, 09 Dec 2009 14:40:30 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4178 very good information...thank you for your time and expertise....and as you can tell from my questions I truely am oblivious...h3ll, I've only been investing money for 30 years. very good information…thank you for your time and expertise….and as you can tell from my questions I truely am oblivious…h3ll, I’ve only been investing money for 30 years.

]]> By: Mike http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4172 Mike Tue, 08 Dec 2009 20:18:11 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4172 Pat: First, a clarification of terminology to make sure we're on the same page: Distributions are the amounts you take <i>out</i> of the IRA. Contributions are the amounts you put <i>into</i> the IRA. As to claiming a loss on investments in a Roth IRA: Yes, it's possible in some circumstances. In your situation, however, it's likely that you won't be able to. From <a href="http://www.irs.gov/publications/p590/" rel="nofollow">IRS Publication 590</a>: "If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis." (Unrecovered basis = the amount of your contributions.) Also (and this is the part that will probably prevent you from deducting it), the deduction for losses in a Roth IRA is a "miscellaneous itemized deduction," which means you can only deduct it to the extent that it exceeds 2% of your Adjusted Gross Income. Pat:

First, a clarification of terminology to make sure we’re on the same page:
Distributions are the amounts you take out of the IRA.
Contributions are the amounts you put into the IRA.

As to claiming a loss on investments in a Roth IRA: Yes, it’s possible in some circumstances. In your situation, however, it’s likely that you won’t be able to.

From IRS Publication 590:
“If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis.” (Unrecovered basis = the amount of your contributions.)

Also (and this is the part that will probably prevent you from deducting it), the deduction for losses in a Roth IRA is a “miscellaneous itemized deduction,” which means you can only deduct it to the extent that it exceeds 2% of your Adjusted Gross Income.

]]> By: pat dauria http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4171 pat dauria Tue, 08 Dec 2009 20:04:09 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4171 OK, that sounds good. Now...since I distributed $2,250 and only redeemed $1,970 (the total amount left in the account) then I am able to claim a loss for the difference in my 2009 taxes. Yes? ...and thanks for the quick response... OK, that sounds good.
Now…since I distributed $2,250 and only redeemed $1,970 (the total amount left in the account) then I am able to claim a loss for the difference in my 2009 taxes.
Yes?
…and thanks for the quick response…

]]> By: Mike http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4166 Mike Mon, 07 Dec 2009 17:07:32 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4166 Correct. If you've taken no distributions yet, a distribution in the amount of $1,970 would be tax and penalty free given that you've made contributions of $2,250. Correct. If you’ve taken no distributions yet, a distribution in the amount of $1,970 would be tax and penalty free given that you’ve made contributions of $2,250.

]]> By: pat dauria http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/comment-page-1/#comment-4162 pat dauria Mon, 07 Dec 2009 14:42:24 +0000 http://www.obliviousinvestor.com/?p=5156#comment-4162 I am currently 52 years old. I opened a Roth IRA mutual fund in 3/99 for $2,000. The only further contribution I made to this account was $250 (in early 2000) I just closed the account (12/7/09) and have a check coming for the amount of $1,970. Since this amount is less then the amount I contributed ($2,250)then I should not have to pay taxes or penelties for "early withdrawl". Correct? I am currently 52 years old.
I opened a Roth IRA mutual fund in 3/99 for $2,000.
The only further contribution I made to this account was $250 (in early 2000)
I just closed the account (12/7/09) and have a check coming for the amount of $1,970.
Since this amount is less then the amount I contributed ($2,250)then I should not have to pay taxes or penelties for “early withdrawl”.
Correct?

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