COMBINED ROTH AND IRA ACCOUNTS
IF ONE HAS AN IRA AND A ROTH IRA, – MY UNDERSTANDING WAS THAT IN THE PAST, THE IRS CONSIDERED THAT THE TOTAL ROTH GROWTH RATE OF THE FUNDS UPON DISTRIBUTION WOULD NOT BE 100% TAX-FREE. IS THAT STILL THE CASE/THE RULE? FOR EXAMPLE, ONE DEPOSITED $20,000 IN THEIR ROTH, WHICH HAS GROWN TO $50,000, AND THEIR TRADITIONAL IRA HAS $50,000. IS THE FULL $30K GROWTH IN THE ROTH CONSIDERED FULLY TAX DEDUCTIBLE UPON WITHDRAWAL, OR DOES THE IRS STILL CONSIDER INCLUDING BOTH IRA ACCOUNTS TO DETERMINE THE FULL TAX-FREE ACCESS TO THE ROTH DISTRITIONS AND GROWTH?
Permalink Submitted by Alan - IRA critic on Tue, 2024-04-02 17:18
TIRA balances and distributions are not relevant with respect to the taxation of Roth distributions. The 30k of gains in the Roth IRA only become tax free once the Roth IRA is “qualified” by meeting both the 5 year holding period for a Roth IRA, and reaching 59.5 or being disabled. Until then, the first 20k (the contributions) come out first and are tax and penalty free. Further distributions of gains would be subject to tax and usually the 10% penalty if under 59.5.