IRA vs TSP

[Guest]

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I got out of fed service because of dip wits like this . You only are reading the parts you want to read. You are totally avoiding the held for five years AND

you crook

you are disabiled.

Because you need the money to pay for a car repair is not a emergency to the IRS.

MT

 

[Rod]

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Hey Pete,

You, I, and everyone else reading this topic knows that you & I are correct, and MT is dead wrong.

All due respect to MT... he is only reading what he wants to read. He is NOT taking into consideration the ordering rulesfor distributions. He simply does not understand there are ordering rules associated with a distribution that will clarify whether or not a 10% penalty & taxes are applied.

Nevertheless, we know weare right, and that'swhat really matters.:u

Just maybe MT will humble himself and phone a local CPA...:i

Peace:!

 

[Rod]

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MarketTimer wrote:

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

There is NO WAY you took the time to read what I presented. Once again, you are ignoring the ordering rules.

 

[Guest]

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Rod wrote:

Hey Pete,

You, I, and everyone else reading this topic knows that you & I are correct, and MT is dead wrong.

All due respect to MT... he is only reading what he wants to read. He is NOT taking into consideration the ordering rulesfor distributions. He simply does not understand there are ordering rules associated with a distribution that will clarify whether or not a 10% penalty & taxes are applied.

Nevertheless, we know weare right, and that'swhat really matters.:u

Just maybe MT will humble himself and phone a local CPA...:i

Peace:!

Rod,

You are really slow.

Ok now we are talking must be BOTH....YOU MUST MEET BOTH REQUIREMENTS TO BE QUALFIED. You can pull crap from anywhere but I would go with the IRS site.

The Roth IRA, on the other hand, allows “qualified distributions” to be free from tax and penalties.

“Qualified Distribution” Defined
Distributions from a Roth IRA that are not qualified may be subjected to income tax and an additional ten percent early-withdrawal penalty. A qualified distribution meets both of the following two categories of requirements:




[font="Verdana, Arial, Helvetica, sans-serif"]1) It occurs at least five years after the Roth IRA owner established and funded his/her first Roth IRA*. [/font]

[font="Verdana, Arial, Helvetica, sans-serif"]2) It is distributed under one of the following circumstances:[/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 going to be 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 following: [/font][font="Verdana, Arial, Helvetica, sans-serif"]
  - the Roth IRA holder.
  - the Roth IRA holder's spouse.
  - the children of the Roth IRA holder and/or his/her spouse.
  - the grandchild of the Roth IRA holder and/or his/her spouse.
  - the parent or other ancestor of the Roth IRA holder and/or his/her spouse.
  
  [/font][font="Verdana, Arial, Helvetica, sans-serif"]This is limited to $10,000 per lifetime.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The Roth IRA holder becomes disabled before the distribution.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The beneficiary of the Roth IRA holder receives the assets after his/her death.[/font]

 

[Pete1]

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From the FPA:

Financial Planning Perspectives
provided by Financial Planning Association

Tax-Free Early Roth IRA Earning Withdrawals

 

[Guest]

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The withdrawals are tax-free if you're over age 59½ and at least five years have expired since you established your Roth IRA. Otherwise (with limited exceptions) they're taxable and potentially subject to the early withdrawal penalty.

I believe car repairs and a vacation falls under limited exceptions, not :^.

After five years, a Roth IRA allows tax-free withdrawals for a first-time purchase (up to $10,000), disability or certain emergencies without penalty, up to the amount deposited.

[font="Arial, Helvetica, sans-serif"]Qualifying Distributions
[/font]

[font="Arial, Helvetica, sans-serif"]To qualify for a tax-free withdrawal at retirement (after age 59[suP]1[/suP]/2), a distribution must be made after a five-year holding period. In other words, you cannot make a withdrawal until five years from the first tax year you make a contribution to your Roth IRA.
[/font]

[font="Arial, Helvetica, sans-serif"]After this initial holding period, you may also make withdrawals due to death or disability, or to purchase your first home (up to a $10,000 lifetime cap), without triggering federal income taxes or being subject to the 10 percent federal income tax penalty for early withdrawals.
[/font]

[font="Arial, Helvetica, sans-serif"]You may also withdraw funds from your Roth IRA for college expenses (after the initial five-year holding period) without incurring the 10 percent penalty, although regular income taxes would be due on withdrawn earnings.
[/font]

[font="Arial, Helvetica, sans-serif"]Keep in mind that although qualified distributions are free of federal income taxes, state and/or local taxes may apply in some states.[/font]
[font="Arial, Helvetica, sans-serif"]
A qualified distribution is generally, any payment or distribution made after the 5–taxable–year period beginning with the first year for which a contribution was made to a Roth IRA set up for you, and you reach age 59 1/2 or because you are disabled, made to a beneficiary or to your estate after your death, or that is made to buy, build, or rebuild a first home.





Which distributions from a Roth IRA are not taxable?

Certain distributions from your Roth IRA are not included in your gross income and are not subject to federal income tax. These include:

• Return of regular contributions that exceed the contribution limit and are returned before your tax return due date
• Qualified distributions (as defined in this section), that have remained in the Roth IRA for five years or more
• Distributions from your Roth IRA that you roll over tax free into another Roth IRA

Generally speaking, a qualified distribution is any distribution from your Roth IRA (or amounts converted from a Traditional IRA which were subject to tax), which have been in the account for at least five years AND are made:

• on or after the date you reach age 59½,
• because you are disabled,
• to a beneficiary or to your estate after your death, or
• to buy, build, or rebuild a first home (up to a $10,000 lifetime limit).

both and and will kill ya everytime :s
[/font]

 

[Rod]

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MarketTimer wrote:

“Qualified Distribution” Defined
Distributions from a Roth IRA that are not qualified may be subjected to income tax and an additional ten percent early-withdrawal penalty.

"MAY BE" subjected. Not WILL BE.

Just because it IS NOT a qualified distribution DOES NOT mean it WILL incur the 10% penalty and tax.

It MAY BE subject to the penalty, and it MAY BE subject to the tax.Not, WILL BE.

http://www.irs.gov/publications/p590/15160x04.html

Once again, I refer you to the ORDERING RULES.

 

[Guest]

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Taxation and Penalties for Roth IRA Distributions

Qualified distributions from a Roth IRA are not includible in income or subject to the 10% early withdrawal penalty. A qualified distribution is a distribution to an owner after the owner has reached age 59½ (or who is disabled, a first-time home buyer, or in the case of a beneficiary of the estate, death) and the Roth IRA has been funded for a 5-year period, beginning on the first day of the tax year in which a conversion from a regular IRA is made or for which a contribution is made, and ending with the last day of the 5th year from the beginning year . If the distribution is made to a beneficiary of the estate of the owner, the period held by the decedent is included in the period held by the beneficiary to determine whether the 5-year period is satisfied (408A(d)(2)(A) and Reg. §1.408A-6, Q&A-1(b)).

that freaky pesky AND again.

 

[Guest]

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Are Withdrawals from my Roth IRA Always Tax-Free, Regardless of When I Withdraw the Money?
Yes, if each withdrawal is a "qualified" distribution.

For a distribution to be qualified, you must leave the money in your Roth IRA for five tax years, beginning with the first year you made a contribution. Before you can start taking money out tax-free, you must also be at least 59-1/2 years old, become disabled, die, or use the money (up to $10,000) to buy a first home for you, your spouse, child, or grandchild.

NOW WE GOT A IF!!!

 

[Guest]

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Withdrawals of accumulated earnings are entirely tax-freeand penalty freeonly if you (1) hold the Roth IRA for a minimum of five years and (2) meet one of the following qualified exemptions:

• Reach the minimum age of 59 1/2
• Take up to $10,000 for first-time home purchase
• Disability
• Death

 

[Guest]

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Tax-free retirement income under certain conditions.

Contributions to a Roth IRA are not tax deductible, but withdrawals are generally tax free if you meet these requirements:

• You begin withdrawals at least five years after you establish the IRA, and
  • You are at least age 59½, or
  • You use the withdrawn funds for a first-home purchase (withdrawals for this purpose are limited to a lifetime cap of $10,000)², or
  • You become disabled or die

 

[Guest]

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Withdrawal of the original contributions to a Roth IRA may be made anytime, if you satisfy two conditions.

First, the plan must have been opened for at least five years, and second, the withdrawal must be made for one of

• Qualified first-time home purchase
• You attain age 59 1/2
• Death
• Disability

 

[Rod]

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MT, I believe you are ignoring the ordering rules... even as they pertain to nonqualified distributions (under 5 years). That said, I would like for you to comment on the following fact sheet on the ROTH IRAfrom a Credit Union:

[font="Arial, Helvetica, sans-serif"]"Nonqualified distributions may be taxable and subject to a 10% early distribution penalty. Distributions are subject to ordering rules. Any distribution from a Roth IRA is considered to come from contributory funds first. Nonqualified distributions from contributory funds can be made tax-free and are not subject to the 10% IRS penalty. After contributory funds are depleted, withdrawals are considered to come from conversion funds. A nonqualified distribution of nontaxable preconversion assets (nondeductible contributions made to a Traditional IRA) will not be taxable and will not be subject to the 10% IRS penalty. A nonqualified distribution of taxable preconversion assets (deductible contributions made to a Traditional IRA) will not be taxable or subject to the 10% IRS penalty if it meets the 5 year test. After contributory funds and conversion funds are depleted distributions are considered to come from earnings. Any earnings withdrawn as a nonqualified distribution will be taxable and must be included in income. These earnings will be subject to the 10% early distibution penalty unless the distribution was made for one the the following reasons: death of the IRA owner, owner is over 59 ½, the IRA owner is permanently or totally disabled, the funds are used for a first-home purchase, to pay education expenses, to pay health insurance or medical expenses."[/font]

http://www.psecu.com/Products_Services/Accounts/IRA/Roth/

Comments please.

 

[Guest]

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[font="trebuchet ms, arial, helvetica"][size=+1]Roth IRA: An Individual Retirement Account that grows Tax Free[/size][/font]



[font="trebuchet ms, arial, helvetica"]Roth IRAs are a terrific tax break, especially for individuals previously shut out of the deductible IRA game because their incomes were too high. Unlike traditional IRAs, Roth contributions are nondeductible, but the earnings build up tax-free and withdrawals are free of federal income tax as long as the account has been open at least five years and you're age 59 1/2 or older.[/font]
[font="trebuchet ms, arial, helvetica"]Eligibility for the Roth is phased out between adjusted gross income (AGI) of $150,000 and $160,000 for joint filers and between $95,000 and $110,000 for singles. If you are eligible, you can contribute up to $2,000 annually or $4,000 for married couples. You can still contribute to a regular IRA, but your total IRA contributions cannot exceed $2,000 per person. You can also convert a traditional deductible or nondeductible IRA into a Roth. The conversion is treated as a taxable distribution from the traditional IRA. For 1998 conversions only, you can spread the resulting income evenly over four years (1998 through 2001). For conversions in later years, you have to take the entire income tax hit in the year you convert. However, the conversion option is only available if your AGI, not including income triggered by the conversion itself, is $100,000 or less.[/font]




Early Withdrawal for Any Other Reason - A 10% penalty is assessed

 

[Rod]

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MarketTimer wrote:

[font="trebuchet ms, arial, helvetica"][size=+1]Roth IRA: An Individual Retirement Account that grows Tax Free[/size][/font]



[font="trebuchet ms, arial, helvetica"]Roth IRAs are a terrific tax break, especially for individuals previously shut out of the deductible IRA game because their incomes were too high. Unlike traditional IRAs, Roth contributions are nondeductible, but the earnings build up tax-free and withdrawals are free of federal income tax as long as the account has been open at least five years and you're age 59 1/2 or older.[/font]
[font="trebuchet ms, arial, helvetica"]Eligibility for the Roth is phased out between adjusted gross income (AGI) of $150,000 and $160,000 for joint filers and between $95,000 and $110,000 for singles. If you are eligible, you can contribute up to $2,000 annually or $4,000 for married couples. You can still contribute to a regular IRA, but your total IRA contributions cannot exceed $2,000 per person. You can also convert a traditional deductible or nondeductible IRA into a Roth. The conversion is treated as a taxable distribution from the traditional IRA. For 1998 conversions only, you can spread the resulting income evenly over four years (1998 through 2001). For conversions in later years, you have to take the entire income tax hit in the year you convert. However, the conversion option is only available if your AGI, not including income triggered by the conversion itself, is $100,000 or less.[/font]




Early Withdrawal for Any Other Reason - A 10% penalty is assessed

You are now ignoring:

1. nonqualified distributions (your articles above assume qualified distributions)

2. ordering rules of distributions

I'm still awaiting your comments on my previous reply.

 

[Rod]

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Hey MT, search this in Google:

non-qualified distributions ROTH IRA

 

[Rod]

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MarketTimer wrote:

Rod wrote: Rod,

You are really slow.

Ok now we are talking must be BOTH....YOU MUST MEET BOTH REQUIREMENTS TO BE QUALFIED. You can pull crap from anywhere but I would go with the IRS site.

The Roth IRA, on the other hand, allows “qualified distributions” to be free from tax and penalties.

“Qualified Distribution” Defined
Distributions from a Roth IRA that are not qualified may be subjected to income tax and an additional ten percent early-withdrawal penalty. A qualified distribution meets both of the following two categories of requirements:




[font="Verdana, Arial, Helvetica, sans-serif"]1) It occurs at least five years after the Roth IRA owner established and funded his/her first Roth IRA*. [/font]

[font="Verdana, Arial, Helvetica, sans-serif"]2) It is distributed under one of the following circumstances:[/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 going to be 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 following: [/font][font="Verdana, Arial, Helvetica, sans-serif"]
  - the Roth IRA holder.
  - the Roth IRA holder's spouse.
  - the children of the Roth IRA holder and/or his/her spouse.
  - the grandchild of the Roth IRA holder and/or his/her spouse.
  - the parent or other ancestor of the Roth IRA holder and/or his/her spouse.
  
  [/font][font="Verdana, Arial, Helvetica, sans-serif"]This is limited to $10,000 per lifetime.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The Roth IRA holder becomes disabled before the distribution.
  [/font]
• [font="Verdana, Arial, Helvetica, sans-serif"]The beneficiary of the Roth IRA holder receives the assets after his/her death.[/font]

Hey MT, you failed to read the next paragraph under your reference above:

Non-Qualified Distributions are ones that don't meet the above criteria. Non-Qualified distributions are subject to taxation and early-distribution penalties depending on the source of the distribution. For example, the IRS uses the following "ordering rules" to determine the source of a distribution from a Roth IRA:

• From the Roth IRA participant's contributions - always tax and penalty free
• From taxable Traditional IRA conversions - tax free but possibly subject to penalties
• From non-taxable Traditional IRA conversion - tax free and penalty free
• From earnings on all Roth IRA assets - taxes apply and penalties may apply

Selective cut-n-pasting???:u Try explaining this one away!


http://www.quadsweb.com/ira_new/roth.cfm

 

[Rod]

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Rod wrote:

MT, I believe you are ignoring the ordering rules... even as they pertain to nonqualified distributions (under 5 years). That said, I would like for you to comment on the following fact sheet on the ROTH IRAfrom a Credit Union:

[font="Arial, Helvetica, sans-serif"]"Nonqualified distributions may be taxable and subject to a 10% early distribution penalty. Distributions are subject to ordering rules. Any distribution from a Roth IRA is considered to come from contributory funds first. Nonqualified distributions from contributory funds can be made tax-free and are not subject to the 10% IRS penalty. After contributory funds are depleted, withdrawals are considered to come from conversion funds. A nonqualified distribution of nontaxable preconversion assets (nondeductible contributions made to a Traditional IRA) will not be taxable and will not be subject to the 10% IRS penalty. A nonqualified distribution of taxable preconversion assets (deductible contributions made to a Traditional IRA) will not be taxable or subject to the 10% IRS penalty if it meets the 5 year test. After contributory funds and conversion funds are depleted distributions are considered to come from earnings. Any earnings withdrawn as a nonqualified distribution will be taxable and must be included in income. These earnings will be subject to the 10% early distibution penalty unless the distribution was made for one the the following reasons: death of the IRA owner, owner is over 59 ½, the IRA owner is permanently or totally disabled, the funds are used for a first-home purchase, to pay education expenses, to pay health insurance or medical expenses."[/font]

http://www.psecu.com/Products_Services/Accounts/IRA/Roth/

Comments please.

Hey MT, still awaiting your comments on the above.

 

[azanon]

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Is this guy serious? rofl. MT, you're just simply wrong on this one. You know I do my own taxes every year, and I've noticed on quicken that with roths, the actual tax form has a blank to keep up with contribution amounts over multiple years. Hmmm I wonder why that is. Maybe its because contributions can be withdrawn and arn't subject to the 10% penality like earnings are.

I hadnt checked this forum for a few days. IMO, MT's bolding (yelling) is very excessive and rude. I know it wouldnt continue if i was the mod here. I'm ok with it used sparingly (like rod is), but MT is clearly over the top.

I got out of fed service because of dip wits like this .

Lets talk odds for a moment. What's more likely; we're all dipwits MT, or you are. Seriously, i want your honest answer/opinion.

 

[Rod]

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azanon wrote:

Lets talk odds for a moment. What's more likely; we're all dipwits MT, or you are. Seriously, i want your honest answer/opinion.

And might I add that EVERY financial analyst/institution that we have quoted must be "dipwits" as well!!!:h

:dah::l:dah: