IRA vs TSP

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Rod,

He's not going to respond to that explanation by the credit union, because it so clearly shows where MT got confused. MT, in sum here's where you went wrong: You (mistakingly) thought that withdrawals must be "qualified distributions" to be exempt from the 10% penality. As rod showed,nonqualified distributions"may be" subject to that penality, suggesting by the very meaning of "may be" that there are some exceptions.

You must have reposted 8 times what constitutes a "qualified distribution". MT, we agree with all those requirements. Taking out contribuions from a roth is a non-qualified but penalty free distribution. I dont personally like to say tax free cause you actually did pay taxes on the contributions the year you made them.

Lets just take baby steps here maybe, and work from the grounds that taking out contributions from a Roth are non-qualified. I know you agree with that MT, and so do we. I dont want to ask too much of you. Baby steps. Then we'll go from there.
 
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azanon wrote:
Rod,

He's not going to respond to that explanation by the credit union, because it so clearly shows where MT got confused.
Click to expand...
I believe you're right. At least when I'm debating theology, and am wrong, I'll humble myself and admit the error of my ways.

I believe MT is now beyond that point. But, he could prove me wrong.
 
imported post

Rod wrote:
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.
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Hey MT, still awaiting your comments on the above.
Click to expand...


and waiting...
 
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azanon wrote:
Silence speaks a thousand words. We win! :dah::l:l:dude::dude::^
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Everybody hold hands and do the "Cotton-Eyed Joe"!!! :!:!:!:!:!:!:!

Country line dance for anyone that doesn't know.........;)
 
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azanon wrote:
Silence speaks a thousand words. We win! :dah::l:l:dude::dude::^
Click to expand...
I'll give him the benefit of a doubt. He may have had to move to "higher ground" if he is in the path of Ivan.

Nevertheless, I'm sure he'll return. He's already invested too much NOT too.:D

And we all know how investors work... it's rather hard to just walk away.;)
 
imported post

Nevertheless, I'm sure he'll return. He's already invested too much NOT too.:D

And we all know how investors work... it's rather hard to just walk away.;)
Click to expand...

Yeah, but that's an aweful lot of 60pt, bolded, red colored text he'll have to spoonfeedhimselfthough.
 
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BTW, for those interested, here's some definitive guidance from the IRS:

The first step would be to look at the rules for a qualified distribution. These rules say that if a distribution from a Roth IRA is qualified then it is not taxable. A qualified distribution is one that occurs at least five years after the individual established his/her first Roth IRA AND the distribution occurs because of one of the following four:


1) the distribution is made on or after the date on which the owner attains age 59 1/2,


2) made to a beneficiary or the estate of the owner on or after the date of the owner's death


3) is made after the owner is disabled as deigned in the Code , or


4) to use toward a first time home ( $10,000 limit)


The question then becomes, “ How is a nonqualified distribution taxed?”. This is addressed in the Final Roth IRA regulations (treasury Regulations), specifically Treas Reg § 1.408A-6, Q&A-4:


Q-4. How is a distribution from a Roth IRA taxed if it is not a qualified distribution?


A-4. A distribution that is not a qualified distribution, and is neither contributed to another Roth IRA in a qualified rollover contribution nor constitutes a corrective distribution, is includible in the owner's gross income to the extent that the amount of the distribution, when added to the amount of all prior distributions from the owner's Roth IRAs (whether or not they were qualified distributions) and reduced by the amount of those prior distributions previously includible in gross income, exceeds the owner's contributions to all his or her Roth IRAs. For purposes of this A-4, any amount distributed as a corrective distribution is treated as if it was never contributed.


Then , take a look at Treas Reg § 1.408A-6, Q&A-8, which states


Q-8. How is it determined whether an amount distributed from a Roth IRA is allocated to regular contributions, conversion contributions, or earnings?


A-8.


(a) Any amount distributed from an individual's Roth IRA is treated as made in the following order (determined as of the end of a taxable year and exhausting each category before moving to the following category) —


(1) From regular contributions;
(2) From conversion contributions, on a first-in-first-out basis; and
(3) From earnings.
(b) To the extent a distribution is treated as made from a particular conversion contribution, it is treated as made first from the portion, if any, that was includible in gross income as a result of the conversion.

Once again,these are the ORDERING RULES I have been trying to emphasize time and time again. Itcan allbe summed up at:

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

God Bless
 
imported post

I checked the IRS website and other reading materials that I have such as the Motley Fools and by Ed Slot("The Retirement Savings Time Bomb... And How to difuse it"),who is one of America's IRA Expert and I have to agree with Rod and Azanon on this topic. Although, MT's opinion has some merits,it fails to cover all the facts which is allowing individual to withdrawthe after tax money they contributed to ROTH IRA.

As for the original question about utilizing theROTH IRA as a medium for emergency funds, I strongly advice against it. However, if it is really emergency as stated and no other recourse is available to fund the requirement, I will not hesitate to use the ROTH IRAor the TSP for that matter. It really all depends on the circumstances.

I duly respect the input that people bring in this forum. I know that I have benefited alot by reading everyones comments. However, I truly believe that putting downeach other isdetrimental to the success of this forum and limits or maybe even restricts other peoplefrom sharing their views and ideas. Although, I do not support MT's point of view on this matter, I still think that he/she along with Rod and Azanon are very knowledgeable (and important) with their respective areas.

I appreciate you all for sharing your knowledge and encouraging us newcomers to learn from you all.

Pyriel
 
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