38 year old with Roth IRA
I have a prospect coming into the office tomorrow morning. We met at a seminar and he currently has a roth. He is 38 years old and has had the roth for more than 5 years. The question is, can he take out the money tax free without any penalties? Or, can he just take back contributions tax free and the gains are taxed?
Thanks
Permalink Submitted by Clyde Wolf on Thu, 2012-08-23 17:53
Jordan,
Of course the prospect can take his Annual ROTH Contributions at any time for any reason free from tax and penalty.
If there are any Conversion amounts distributed from the ROTH IRA, they would be subject to the 10% penalty until the Conversion has aged 5years. Each Conversion has it’s own 5 year aging process. The Conversion amount would come out tax free.
The distribution of gains from a ROTH IRA are taxable income as long as the IRA owner is less than 59 1/2 years old AND has owned a ROTH IRA for less than 5 years. The Early Distribution Penalty would also apply unless one of the 9 exceptions listed on page 49 of IRS Pub 590, Individual Retirement Arrangements, come into play such as, qualified higher education expenses, disability, etc. http://www.irs.gov/pub/irs-pdf/p590.pdf
Permalink Submitted by Alan Spross on Thu, 2012-08-23 18:02
cwolf,
The capitalized “AND” you probably meant to be “OR” 😛 Result is that the distribution of his earnings now would be taxable.
Permalink Submitted by Clyde Wolf on Thu, 2012-08-23 21:49
Alan-oniras,
I learn a lot from your posts.
My sentence is poorly constructed.
I understand there are 2 conditions that must be met to take tax free distributions from a ROTH IRA.
1) The owner must have owned a ROTH IRA for at least 5 years.
2) The owner must be at least age 59 1/2 or disabled.