roth IRA withdrawal

I'm back to suggesting a glance at

because it's better to have a reliable reference.

That said, a deposit into a Roth (a deposit being after tax money that came from earnings, not from another account) may be withdrawn, and only its earnings is taxed/penalized 10%. (This lead me to the dual purpose a Roth can serve early on in one's saving/investing career)

A conversion a la my anecdotes at

to age the five years to avoid the tax/penalty.(And this is the real-life use of conversions to tax-manage one'saccounts. There is no tax tail wagging the investment dog, just somestrategic shifting to help minimize annual tax bite.) JOE

This might sound dumb, but what exactly is a conversion?

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A Roth conversion is when you convert a traditional IRA to a Roth IRA.

One is permitted (subject to income restrictions) to take a regular IRA, or a portion of it, and convert it to a Roth IRA. They would have to pay tax on the portion that's pre tax, declaring it as income for the year it's converted over. I give detailed examples at my site explaining how this can be a useful strategy to manage one's tax bracket year to year.

I recently interviewed a well paid person (33% bracket) who told me he was going to take the rest of the year off and begin a new job in 08. This is his opportunity to roll over his 401(k) to an IRA and convert a chunk of it to a Roth, just to where he's paying 25% (married up to $128K). For others, this strategy can be used during periods of unemployment, or when one spouse takes unpaid time off to have a child. At retirement, it's a way to manage one's required distributions and their effect on social security. JOE

However, waiting for a lower income year isn't necessary to do a conversion. We converted some IRA monies over several years awhile back, and we were earning the same income, or even a slightly increasing income, year to year. No, we weren't in the highest tax bracket, but higher than we are in retirement. For us, the Roth has a couple of advantages over a Traditional IRA, and we decided to pay the taxes to convert and make sure we would have those advantages.

Elizabeth Richardson