Liquidating a 6 year old Roth IRA -- any tax consequences?

If you file a joint return and your joint AGI is under the Roth limit, you both can contribute based on one's earnings. See IRS Publication 590.

You don't need those statements for any tax purpose.

The last time I looked (years ago) your account balances are high enough to avoid maintenance fees at Fidelity. I'm sure there's a custodian somewhere who wouldn't charge a fee. Vanguard might even waive theirs if you told them you were going to move all your accounts elsewhere. Just something to think about when a financial institution forgets whose money we're talking about. Vanguard would probably charge a premature distribution fee if you move the account, but they're also going to charge such a fee if you cash out.

Assuming you're both under 59 1/2:

You have a $300 miscellaneous itemized deduction on Schedule A, subject to the 2% of AGI exclusion. Probably worthless. Your wife has $500 taxable income calculated on Form 8606. There will be a $50 penalty in addition to the income tax.

-- Phil Marti Clarksburg, MD

deja snipped-for-privacy@yahoo.com wrote:

Actually, you could (and still can) make your contributions to nondeductible/ after tax IRA accounts. Then, in 2010, you could convert the traiditional IRA to the Roth, with possibly little or no tax liability. Lost opportunity for

You're mistaken. Since the AGI limit is based on joint income, if you can't contribute then neither can she.

In the following discussion it is assumed that neither one of you is above age 59-1/2, so none of the withdrawals are "qualified". If that is not true, the answer would be somewhat different. Your account is currently worth LESS than the total of your after-tax contributions, therefore there are no "earnings". You can withdraw the entire account, with no tax liability or penalty. If you itemize your deductions, you can claim your loss ($300) as a Miscellaneous Deduction, subject to the 2% of AGI limitation. This may give you a slight tax benefit, depending on other Misc Deductions. The withdrawal will be reported to you on a 1099-R form. You will report on two forms, 8606 (to show your "basis") and Line 15a and 15b of your 1040. Line 15a is the gross withdrawal, 15b would be -0- (since none is taxable). Use Schedule A of your 1040 to claim the loss. Your spouse's account is currently worth MORE than the total of her after-tax contributions, therefore has "earnings" to be taxed. The total contributions ($4000) are withdrawn tax- and penalty-free. The earnings ($500) are subject to ordinary tax rates and, also, subject to a 10% early withdrawal penalty. Her custodian will report the withdrawal on a 1099-R form. Three forms will be needed to report the withdrawal, income and penalty to the IRS. Form 8606 is used to calculate her basis in the account, Lines 15a ($4500) and 15b ($500) of your joint 1040 will report the extra income, and Form 5329 will calculate the penalty. An additional line on the 1040 is used to report the penalty and add it to any tax due. Tax deferred accounts (e.g. IRAs) do not generate capital gains, so do not enjoy the lower tax rates like a taxable account would. Schedule D is not used.

ROTH accounts are still the very best money can buy. While maybe not being able to avoid a service fee, at least switch to online statements instead of having to put up with paper statements. Or consider finding a new place to rollover the ROTH accounts, perhaps one without any fees. ChEAR$, Harlan Lunsford, EA n LA