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Cashing in a Roth
pabooger
Member Posts: 13,953
What are the penalties, if any for withdrawing money from a Roth?
LIFES MOSTLY SCARS AND SOUVENIR'S - Max Stalling
To Ride, shoot straight,and speak the truth
This was the Ancient law of Youth
Old times are past, old times are done:
But the Law runs true, O little son!
LIFES MOSTLY SCARS AND SOUVENIR'S - Max Stalling
To Ride, shoot straight,and speak the truth
This was the Ancient law of Youth
Old times are past, old times are done:
But the Law runs true, O little son!
Comments
You get a form for disbursement, and say "house purchase".
They don't really check beyond that. It can be for the mortgage.
There may also be some medical conditions which would allow withdraw without penalty.
Call your fund manager if you want more than 10K (each, you + wife).
It might be 10% + taxes...not sure on that one.
The income could bump you into a higher tax bracket. You won't have that headache until 2005 tax time though.
Them ducks is wary.
Lil' Stinker's Opinion
Dont you just love how they penalize ya for using your own money??[:D]
Its not your money, its the governments money. Thet just let you hold onto it under certain conditions.
"Waiting tables is what you know, making cheese is what I know-lets stick with what we know!"
-Jimmy the cheese man
Got a new gun for my ex-wife.....pretty good trade, huh?
"If you aim at nothing,
you will be sure to hit it"
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"If cowardly and dishonorable men sometimes shoot unarmed men with army pistols or guns, the evil must be prevented by the penitentiary and gallows, and not by a general deprivation of a constitutional privilege." - Arkansas Supreme Court, 1878<P>
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Can you please go over the taxes that you are required to pay with a Roth IRA? I know it is federal income tax free at time of withdrawal but what about state and local taxes on those withdrawals?
First of all, withdrawals from a Roth IRA are NOT always federally tax-free. Only those that meet the definition of "qualified" escape federal income tax.
A "qualified" distribution is one that is made after the Roth IRA is at least 5 years old and when one of the following is also true:
1. the Roth IRA owner has reached age 59 1/2; or
2. The Roth IRA owner dies and the beneficiary begins withdrawals; or
3. The Roth IRA owner becomes disabled; or
4. The Roth IRA owner withdraws $10,000 toward the purchase of a first-time home.
Since Roth contributions are made with after-tax dollars, these amounts are never taxed again. And they can be withdrawn at any time. Let me restate this so there is no confusion: Roth IRA contributions can be withdrawn tax-free and penalty-free at any time.
But this does not apply to the earnings on those contributions. These could be subject to ordinary income tax as well as a possible 10% penalty if your withdrawal doesn't meet the above definition of "qualified." In addition, earnings on money you converted from a tax-deductible IRA to a Roth could also be hit with a penalty unless you time it right.
In general, states tend to treat Roth IRA withdrawals the same as the federal government. But you can't count on this. Take Pennsylvania, for instance. According to John Logan, the Senior State Tax Analyst at CCH, under Pennsylvania law Roth IRA withdrawals are only considered "qualified"- and therefore tax-free- if the IRA owner is at least age 59 1/2 and retired. There is apparently no five-year requirement and the three other exceptions do not apply.
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Sometimes, when someone is talking to me, my mind drifts off and I
start thinking about guns I'd like to own.
Very similiar question asked on fox news. Here's the C&P
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A "qualified" distribution is one that is made after the Roth IRA is at least 5 years old and when one of the following is also true:
1. the Roth IRA owner has reached age 59 1/2; or
2. The Roth IRA owner dies and the beneficiary begins withdrawals; or
3. The Roth IRA owner becomes disabled; or
4. The Roth IRA owner withdraws $10,000 toward the purchase of a first-time home.
I believe there are also "qualified" distributions if the money being withdrawn for certain education expenses for oneself or some family members--check the IRS website; I know they have the details there.
http://flagship5.vanguard.com/web/corpcontent/scatSvcsRetIRACompare.html
Early Withdrawal Penalty Tax
You will pay a 10% penalty on a premature withdrawal unless your distribution qualifies as an exception to the penalty. (Distributions from a SIMPLE IRA are subject to 25% penalty within the first 2 years, then 10% thereafter.) The penalty will not apply if the distribution is used for:
* A first-time home purchase (lifetime maximum is $10,000).
* Postsecondary education expenses.
* Substantially equal periodic payments taken under IRS guidelines.
* Medical expenses exceeding 7.5% of your adjusted gross income.
* An IRS levy.
* Health insurance premiums (after you have received at least 12 consecutive
weeks of unemployment compensation).
* Disability.
* Death.
Walte