Roth Contribution Limits for 2009
If a person is maximizing the allowed contributions in their 401(k) plan (contributing the full normal and catch up contribution amounts) can they still open a Roth and contribute the full regular and catch up amount in 2010?
Also if a person does a conversion from a traditional IRA to a Roth IRA in 2010 and they are over 59 1/2 what happens if they take out a distribution from the Roth IRA within the first 5 years? Is the distribution amount taxed as ordinary income or do they pay an additional penalty?
Permalink Submitted by Alan Spross on Mon, 2009-09-21 19:26
1) Regular Roth contributions can only be made if your modified AGI is under the dollar limit of 176,000 (joint) or 120,000 (single) for 2009. Contributing to a 401k can reduce your AGI and make it more likely that you will fall under these dollar limits for a Roth contribution. Otherwise, contributing to the 401k has no affect on making your regular Roth contributions.
2) After 59.5, there is no longer an early withdrawal penalty for IRA distributions. For Roth IRAs this applies whether the conversion was done before or after 59.5. The conversion dollars can be distributed after 59.5 with ordinary income tax, but no early withdrawal penalty.
Permalink Submitted by Clyde Wolf on Mon, 2009-09-21 23:52
I believe Alan-oniras mis-spoke when he stated, “The conversion dollars can be distributed after 59.5 with ordinary income tax, but no early withdrawal penalty.”
I agree there would be no early withdrawal penalty. But there would be no income tax on the Conversion dollars. That tax was paid at the time of conversion.
Gains taken from the ROTH IRA would be taxed unless the ROTH IRA owner had owned a ROTH IRA for 5 years or more.
Permalink Submitted by Alan Spross on Tue, 2009-09-22 00:06
Yes, good catch. A non thinking typo. NO TAX or penalty on the distribution of Roth conversions after 59.5.