|
 |
The Roth
IRA... Page 2
continued
Withdrawals
You may begin withdrawing money from your Roth IRA anytime after age 59 1/2.
Contributions can be withdrawn anytime tax-free, penalty-free, and without restriction.
If you withdraw earnings prior to age 59 1/2 and before five years after your account has
been established, you'll be taxed (and penalized). Earnings can be withdrawn tax-free,
however, if your account has been established for at least five years and you are: age 59
1/2, disabled, dead, or using the withdrawal for a first-time home purchase ($10,000
max). Earnings withdrawn after age 59 1/2 are not subject to tax or penalty.
With the Roth IRA there is no minimum withdrawal schedule. You're not required to tap your
money at age 70 1/2 or any other age.
Death and Beneficiaries
If you should die, any money left in your Roth IRA will be passed to your heirs tax-free
(except for estate taxes). This is very different from regular IRAs where all earnings are
taxed as income to your beneficiaries. Your beneficiaries will have a couple of choices
depending on their age and relationship.
- Surviving Spouse.
Is given the most freedom. They can keep the account in their own name and continue to
enjoy tax-deferred growth. They can also expect tax-free withdrawals under the normal
rules that govern Roth IRAs.
- Other Beneficiary.
The rules are little different for someone who is not a spouse of the deceased. These
individuals must take a distribution within five years of the death or over their own life
expectancy (within one year after death). Either way, the account must be liquidated.
Waiting five years to take the distribution will allow the Roth's "five-year
rule" to kick in -- the proceeds will not be taxed. If the beneficiary chooses the
life expectancy method, they may be taxed -- especially if five years of ownership haven't
been met. A 10% early withdrawal penalty will not be assessed in either case.
Reasons to Convert
Converting to a Roth IRA makes sense if:
- You project a high rate of
return for your investments -- accumulated earnings will be withdrawn tax-free.
- You want beneficiaries to
receive a tax-free inheritance from your IRA.
- You have a Traditional IRA
that consists of mostly non-deductible contributions.
- You expect to be in a higher
tax bracket during retirement -- you want to pay tax at today's rate to avoid paying a
higher tax rate in future years.
MORE »
|
