IRA vs TSP

[Guest]

imported post

Pete1 wrote:

Hi Folks,

Everybody take a deep breath......................now let it out......................deep breath.................now let it out. Yes, it has always been my understanding that contributions to a Roth IRA can be withdrawn penalty free at anytime. I agree with the others who are asserting that it is the earnings on the account that are subject to a 10% penalty. There is an interesting article over on RothIRA.com by the Motley Fools. They are very clear that being able to withdraw your contributions (not earnings) is a huge advantage of the Roth verses the conventioanl IRA. Peace to all.

Pete, they can be withdrawn at any time IF YOU MEET ONE OF THE CONDITIONS. If you do not meet one of those then you must wait until your 59.5.

If you meet one of the exemptions (you will not have to pay the 10% penalty and taxes): i.e. if you plan on crooking or becoming disabled prior to 59.5 then fund your IRA as your emergency fund.

Distributions, or Withdrawals
Any amount taken from your IRA account.

[font="Verdana, Arial, Helvetica, sans-serif"]Distribution Defined
For a distribution to be qualified (to be penalty/tax free), it must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA,* and the distribution must occur under at least one of the following conditions:[/font]

• [font="Verdana, Arial, Helvetica, sans-serif"]The Roth IRA holder is at least age 59 ½ when the distribution occurs.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The distributed assets are used towards the purchase or rebuilding of a first home for the Roth IRA holder or a qualified family member. Qualified family members include the IRA owner's spouse, a child of the IRA owner and/or of the IRA owner's spouse, a grandchild of the IRA owner and/or of his/her spouse, a parent or other ancestor of the IRA owner and/or of his/her spouse. This is limited to $10,000 per lifetime.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The distribution occurs after the Roth IRA holder becomes disabled.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The assets are distributed to the beneficiary of the Roth IRA holder after the Roth IRA-holder's death.[/font]

You guys can make fun of me as much as you want but the problem here is your own comprehension level of a very important caveat of funding a IRA prior to having a emergency fund properly funded. You can not just take out money from your ROTH IRA prior to 59.5 without a penalty just because you want too you must meet one of the above, i.e. you also will have to pay your fed/state (if your state requires you too)income level on the amount taken out. YOU DO NOT GET THE 15% DEAL ON IRAS. Must pay your tax level.

MT

Rod - the ROTH IRA is lumped into one account how can you prove to the IRS if you are pulling out earnings or the original contributions??? The earnings would have to go to another account and be seperated.

 

[Rod]

imported post

MarketTimer wrote:

Rod - the ROTH IRA is lumped into one account how can you prove to the IRS if you are pulling out earnings or the original contributions??? The earnings would have to go to another account and be seperated.

The IRS does know how much you've earned on that IRA. If you were to withdraw beyond youroriginal contributions, you will be taxed & penalized.

You need to call a local tax advisor or the IRS itself, because we might as well be talking to a brick wall when trying to convince you we are correct.

Peace:^

 

[Guest]

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Rod wrote:

Hey MT, reference: "Early Withdrawal- Any Other Reason" for the ROTH.

http://www.smartmoney.com/retirement/ira/index.cfm?story=supertable#miscearlywithdrawal

As you can clearly see, you can withdraw your original contributions from a ROTH at anytime without the 10% penalty and taxes. Once again,the 10% penaltyapplies toEARNINGS. Taxation applies to EARNINGS, and NOT the original contributions.

Are we seeing eye-to-eye now???

Peace

 

[Guest]

imported post

Rod,

A distribution is any withdraw, dude.

Distributions, or Withdrawals
Anything taken from your IRA account. In either a traditional or a Roth IRA, distributions may be comprised of earnings, additional contributions, and/or conversions.



Rod wrote:

MarketTimer wrote:

Penalties on Earnings from Contributions
Unless an exception applies, most distributions from a Roth IRA before the owner reaches age 59 1/2 will be subject to an "early withdrawal penalty" of 10% on the amount of the distribution.

Read your title- Penalties on EARNINGS from contributions

I'm telling you, and every finance book I've ever read states that you CAN withdraw your contributions at any time. BUT, ***NOT*** the earnings on those contributions.

Remember, in your example 1, Jim is paying taxes on his earnings.

You still haven't shown me where the IRS states that you can not withdraw your contibutions minus earnings without incurring a penalty. The burden of proof is upon you since you are challenging it. Better yet, call a tax advisor then get back to me.

earnings earnings earnings earnings earnings earnings

We are speaking about earnings!

 

[Guest]

imported post

from IRS

Topic 557 - Tax on Early Distributions from Traditional and ROTH IRAs


To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59 1/2.

Distributions that you roll over to another IRA or qualified retirement plan are not subject to this 10% additional tax (this is what is confusing you - not new money, money rolled from a Traditional IRA to a Roth is penalty free). For more information on rollovers, refer to MarketTimer wrote: [/b]

Rod wrote:

Hey MT, reference: "Early Withdrawal- Any Other Reason" for the ROTH.

http://www.smartmoney.com/retirement/ira/index.cfm?story=supertable#miscearlywithdrawal

As you can clearly see, you can withdraw your original contributions from a ROTH at anytime without the 10% penalty and taxes. Once again,the 10% penaltyapplies toEARNINGS. Taxation applies to EARNINGS, and NOT the original contributions.

Are we seeing eye-to-eye now???

Peace

 

[Guest]

imported post

MarketTimer wrote:

from IRS

Topic 557 - Tax on Early Distributions from Traditional and ROTH IRAs


To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59 1/2.

Distributions that you roll over to another IRA or qualified retirement plan are not subject to this 10% additional tax (this is what is confusing you - not new money, money rolled from a Traditional IRA to a Roth is penalty free).

There are exceptions to this additional tax for early distributions that are:
[*]made to a beneficiary or estate on account of the IRA owner's death,
[*]made on account of disability,
[*]made as part of a series of substantially equal periodic payments over your life or life expectancy,
[*]made to pay for a qualified first–time home purchase,
[*]not in excess of your qualified higher education expenses,
[*]not in excess of certain medical insurance premiums paid while unemployed,
[*]not in excess of your unreimbursed medical expenses that are more than 7.5% of your adjusted gross income, or
[*]due to an IRS levy.

For more information on rollovers, refer to MarketTimer wrote: [/b]

Rod wrote:

Hey MT, reference: "Early Withdrawal- Any Other Reason" for the ROTH.

http://www.smartmoney.com/retirement/ira/index.cfm?story=supertable#miscearlywithdrawal

As you can clearly see, you can withdraw your original contributions from a ROTH at anytime without the 10% penalty and taxes. Once again,the 10% penaltyapplies toEARNINGS. Taxation applies to EARNINGS, and NOT the original contributions.

Are we seeing eye-to-eye now???

Peace

 

[Pete1]

imported post

Here is an excerpt from the Motley Fools article (available for review on RothIRA.com). It is by Robert Brokamp:

Getting your hands on the money
We just talked about how the Roth is better if you don't need the money by the time you're 70 and a half. But what if you want the money before you're 59 and a half? Again, the Roth is the winner.

Withdrawals from a employer-sponsored retirement plan or a traditional IRA before the age of 59 and a half can lead to taxes and penalties (except under special circumstances). This is not necessarily true for a Roth.

Contributions to a Roth -- that is, the money you send to the custodian of the account -- can withdrawn at any time, penalty- and tax-free. For example, let's say you contribute $3,000 to a Roth this year, and in three years, it grows to $4,000. You can withdraw your three-grand contribution at any time, no questions asked. However, if you try to take out that $1,000 in growth before you're 59 and a half, then you may be subject to taxes and penalties (again, except in special cases).

So, if you plan to retire early, the Roth is a great place for your money because you can start withdrawing the money before age 59 and a half without a hassle. Some experts suggest that this also makes the Roth a good account for college savings, emergency savings, and other goals. Believe it or not, those arguments have merit, but it's a complicated discussion -- a topic for a future article.

Still confused? Then perhaps a visit to our IRA Center or Retirement area would be helpful. Or if you'd like to talk to a financial pro about your particular situation, check out TMF Money Advisor.

Robert Brokamp is the co-author of The Motley Fool Personal Finance Workbook and author of The Motley Fool's Guide to Paying for School. The Motley Fool is investors writing for investors.



MT, I agree with Rod, check with a tax advisor and get back to us.

 

[Rod]

imported post

Pete1 wrote:

Here is an excerpt from the Motley Fools article (available for review on RothIRA.com). It is by Robert Brokamp:

Getting your hands on the money
We just talked about how the Roth is better if you don't need the money by the time you're 70 and a half. But what if you want the money before you're 59 and a half? Again, the Roth is the winner.

Withdrawals from a employer-sponsored retirement plan or a traditional IRA before the age of 59 and a half can lead to taxes and penalties (except under special circumstances). This is not necessarily true for a Roth.

Contributions to a Roth -- that is, the money you send to the custodian of the account -- can withdrawn at any time, penalty- and tax-free. For example, let's say you contribute $3,000 to a Roth this year, and in three years, it grows to $4,000. You can withdraw your three-grand contribution at any time, no questions asked. However, if you try to take out that $1,000 in growth before you're 59 and a half, then you may be subject to taxes and penalties (again, except in special cases).

So, if you plan to retire early, the Roth is a great place for your money because you can start withdrawing the money before age 59 and a half without a hassle. Some experts suggest that this also makes the Roth a good account for college savings, emergency savings, and other goals. Believe it or not, those arguments have merit, but it's a complicated discussion -- a topic for a future article.

Still confused? Then perhaps a visit to our IRA Center or Retirement area would be helpful. Or if you'd like to talk to a financial pro about your particular situation, check out TMF Money Advisor.

Robert Brokamp is the co-author of The Motley Fool Personal Finance Workbook and author of The Motley Fool's Guide to Paying for School. The Motley Fool is investors writing for investors.



MT, I agree with Rod, check with a tax advisor and get back to us.

No matter how many articles we present to MT, he's not listening.

I would hope that someone of his caliber would humble himself, admitting heis wrong. I guess I was wrong about him.

I alsoguess all of the investment articles are wrong too, while he is right.o

Hey MT, why don't you believe what the professionalspresent in the articles???:%

I wouldn't think you're that arrogant...

BTW, look againat that article above. Do you see what I see???It readsthe ROTH can be a good account for "emergency savings"!:i

Peace:u

 

[Rod]

imported post

MarketTimer wrote:

MarketTimer wrote:

from IRS

Topic 557 - Tax on Early Distributions from Traditional and ROTH IRAs


To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59 1/2.

Distributions that you roll over to another IRA or qualified retirement plan are not subject to this 10% additional tax (this is what is confusing you - not new money, money rolled from a Traditional IRA to a Roth is penalty free).

There are exceptions to this additional tax for early distributions that are:


[*]made to a beneficiary or estate on account of the IRA owner's death,
[*]made on account of disability,
[*]made as part of a series of substantially equal periodic payments over your life or life expectancy,
[*]made to pay for a qualified first–time home purchase,
[*]not in excess of your qualified higher education expenses,
[*]not in excess of certain medical insurance premiums paid while unemployed,
[*]not in excess of your unreimbursed medical expenses that are more than 7.5% of your adjusted gross income, or
[*]due to an IRS levy.

Dog gone'it MT, when they say Distributions, they are NOT differentiating between original contributions AND earnings. They are lumping both of them together in defining "distribution". In that case, there would be penalty and taxes involved.

So, yourargument is moot.

 

[Rod]

imported post

Further proof that we are right, and whatMT is sayingis wrong:

"In most cases the best strategy is to leave as much money in your IRA as you can, and for as long as you can. But if you need early access to that money, you're generally in better shape with a Roth IRA than with a regular IRA. You're allowed to withdraw your non-rollover contributions at any time without paying tax or penalty. This is not the case for the earnings, however."

http://www.fairmark.com/rothira/taxfree.htm



Roth Distributions (Under Age 59½)


[align=left]Regular Contributions: Tax-free and penalty-free.

Earnings: Ordinary income tax & 10% penalty.[/align]

http://flagship5.vanguard.com/web/corpcontent/scatSvcsRetRothIRAProfileDist.html

Once again, I guess all of theseprofessionals are wrong, while MT is right.

 

[Guest]

imported post

Rod wrote:

Further proof that we are right, and whatMT is sayingis wrong:

"In most cases the best strategy is to leave as much money in your IRA as you can, and for as long as you can. But if you need early access to that money, you're generally in better shape with a Roth IRA than with a regular IRA. You're allowed to withdraw your non-rollover contributions at any time without paying tax or penalty. This is not the case for the earnings, however."

http://www.fairmark.com/rothira/taxfree.htm



Roth Distributions (Under Age 59½)



[align=left]Regular Contributions: Tax-free and penalty-free.

Earnings: Ordinary income tax & 10% penalty.[/align]

http://flagship5.vanguard.com/web/corpcontent/scatSvcsRetRothIRAProfileDist.html

Once again, I guess all of theseprofessionals are wrong, while MT is right.

Rod,

Article 557 is from the IRS.

Topic 557 - Tax on Early Distributions from Traditional and ROTH IRAs


To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59 1/2.

Distributions that you roll over to another IRA or qualified retirement plan are not subject to this 10% additional tax.

There are exceptions to this additional tax for early distributions that are:


[*]made to a beneficiary or estate on account of the IRA owner's death,
[*]made on account of disability,
[*]made as part of a series of substantially equal periodic payments over your life or life expectancy,
[*]made to pay for a qualified first–time home purchase,
[*]not in excess of your qualified higher education expenses,
[*]not in excess of certain medical insurance premiums paid while unemployed,
[*]not in excess of your unreimbursed medical expenses that are more than 7.5% of your adjusted gross income, or
[*]due to an IRS levy.

 

[Pete1]

imported post

MT, your argument is with RothIRA and the bazillion other sources that have been quoted on this post that are in direct disagreement with your assertions. Suggest that you check with a tax accountant and get back to us.

 

[Pete1]

imported post

[align=left]Roth IRA's - Just Do It
by Frank Armstrong [/align]
It's not too late to make your contribution to 2001 Roth IRA. You can open an account, and fund it right up until your filing deadline, which for most of us is April 15, 2002.

 

[Pete1]

imported post

[align=left]Roth IRA's - Just Do It
by Frank Armstrong [/align]
It's not too late to make your contribution to 2001 Roth IRA. You can open an account, and fund it right up until your filing deadline, which for most of us is April 15, 2002.

 

[Pete1]

imported post

For some reason, the above article is being truncated. The following excerpt from the above article is pertinent to the discussion:

While Roth IRA's aren't deductible, withdrawals are tax-free. The Roth isn't subject to the minimum required distribution rules at age 70 ½, and your contributions can be withdrawn before age 59 ½ in an emergency without penalty.But unlike a traditional IRA, you can contribute at any age, and regardless of whether you participate in a qualified plan at your employer. Also don't forget that your non-working spouse can also fund a Roth if you both qualify under the limits.

Mr. Armstrong is a highly respected financial planner. For more, check out InvestorSolutions.com

 

[Guest]

imported post

Pete1 wrote:

MT, your argument is with RothIRA and the bazillion other sources that have been quoted on this post that are in direct disagreement with your assertions. Suggest that you check with a tax accountant and get back to us.

Pete,

That was from the horses mouth - the IRS site. I know what the rules are.

Topic 557 - Tax on Early Distributions from Traditional and ROTH IRAs


To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59 1/2.

Pretty clear to me.

MT

 

[Guest]

imported post

Pete1 wrote:

For some reason, the above article is being truncated. The following excerpt from the above article is pertinent to the discussion:

While Roth IRA's aren't deductible, withdrawals are tax-free. The Roth isn't subject to the minimum required distribution rules at age 70 ½, and your contributions can be withdrawn before age 59 ½ in an emergency without penalty.But unlike a traditional IRA, you can contribute at any age, and regardless of whether you participate in a qualified plan at your employer. Also don't forget that your non-working spouse can also fund a Roth if you both qualify under the limits.

Mr. Armstrong is a highly respected financial planner. For more, check out InvestorSolutions.com

IN AN EMERGENCY - that I have listed over and over

You crook

You become disabled

etc, etc

If you plan on dieing or being disabled use your ROTH as a emergency fund.

I am not wasting my time on this topic anymore.

 

[Rod]

imported post

MarketTimer wrote:

Rod,

Article 557 is from the IRS.

Maybe you should also read 590 which is from the IRS as well.

Click on “Are Distributions Taxable?” under ROTH IRAat:


http://www.irs.gov/publications/p590/index.html


See the first sentence under that heading (i.e. the statement “You do not include in your gross income … DISTRIBUTIONS THAT ARE A RETURN OF YOUR REGULAR CONTRIBUTIONS FROM YOUR ROTH IRA(S)” and read from thereon – paying special attention to the ordering rules.

Ordering rules are summed up and explained in layman's termsat:


http://www.investopedia.com/articles/retirement/03/030403.asp

If youtruly do read/study what I just presented, and are still not convinced, then I simply give up and will no longer waste my time.

Peace

 

[Rod]

imported post

MarketTimer wrote:

Pete1 wrote:

MT, your argument is with RothIRA and the bazillion other sources that have been quoted on this post that are in direct disagreement with your assertions. Suggest that you check with a tax accountant and get back to us.

Pete,

That was from the horses mouth - the IRS site. I know what the rules are.

Topic 557 - Tax on Early Distributions from Traditional and ROTH IRAs


To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions from traditional and Roth IRAs unless an exception applies. Generally, early distributions are those you receive from an IRA before reaching age 59 1/2.

Pretty clear to me.

MT

As usual, you ARE NOT taking into consideration the ORDERING RULES.

 

[Guest]

imported post

Rod wrote:

MarketTimer wrote:

Rod,

Article 557 is from the IRS.

Maybe you should also read 590 which is from the IRS as well.

Click on “Are Distributions Taxable?” under ROTH IRAat:


http://www.irs.gov/publications/p590/index.html


See the first sentence under that heading (i.e. the statement “You do not include in your gross income … DISTRIBUTIONS THAT ARE A RETURN OF YOUR REGULAR CONTRIBUTIONS FROM YOUR ROTH IRA(S)” and read from thereon – paying special attention to the ordering rules.

Ordering rules are summed up and explained in layman's termsat:


http://www.investopedia.com/articles/retirement/03/030403.asp

If youtruly do read/study what I just presented, and are still not convinced, then I simply give up and will no longer waste my time.

Peace

Rod you are not reading the AND part....held for 5 years and you crook or disabled. Where is the confusion??? If you take it out prior to 59.5 because YOU WANT TO you will have to pay the penalty and pay taxes. It is as clear as a bell to me.




What Are Qualified Distributions?

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

1. 
   It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
   
2. 
   The payment or distribution is:
   
   
   1. 
      Made on or after the date you reach age 59½,
      
   2. 
      Made because you are disabled,
      
   3. 
      Made to a beneficiary or to your estate after your death, or