ROTH questions

Yes, through April 17.

Any time you like.

Not on withdrawn contributions.

-- Phil Marti Clarksburg, MD

You have until the deadline (including extensions) for filing to open and fund an IRA, either Roth or traditional. For 2006 tax year, you have until April 17, 2007 or October

One of the beauties of the Roth IRA is that you can withdraw your contributions (but NOT your interest) penalty-free at any time. More than you ever wanted to know about Roth IRAs

-- John D. Goulden

Provided you otherwise qualify (e.g., meet the income limitations), you can open a ROTH IRA and make a contribution for 2006 up until the due date, including extensions, of your 2006 tax return (i.e., April 17, 2007, unless you get an extension of time to file). See IRS Pub.

Yes

not less than 5 years and >59 1/2

Is there a penalty if I am not 59 1/2?

Yes

You must hold it five years to qualify for penalty-free withdrawals. After you meet the holding period for the first Roth IRA, all future Roth IRAs are treated as having met this rule. Once you meet the five-year rule you can withdraw amounts contributed without penalty if under 59 -- but not earnings or conversions from previously-existing IRAs.

As you can see I have received conflicting advice. Some say I can withdraw my contributions any time. Others say I have to wait five years. I have read publication 590 and either I can't find the answer or, if it's there I don't understand it. Can someone point out where in that publication it gives me the answer. Thanks

(snipped)

You say until the extended time for an IRA? When did this change? ChEAr$, Harlan Lunsford, EA n LA (are we having fun,yet?)

Instructions say "Not including extensions."

Not true. Extensions don't extend the last date for vanilla IRA contributions. See IRS Publication 590.

-- Phil Marti Clarksburg, MD

You mean page 58 where it says "You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions)."?

-- Phil Marti Clarksburg, MD

There seems to be a lot of confusion about this.

The 5-year rule is essential for a distribution to be "qualified" and, thus, tax-free. However, not all nonqualified distributions are subject to the premature distribution penalty. With the exception of conversions withdrawn within 5 years after the conversion, the penalty applies only to the taxable portion of the distribution. The ordering rules for nonqualified distributions take contributions first. There is no taxable distribution when a contribution is withdrawn, period. Thus, if only contributions are withdrawn, there's no taxable income and no penalty.

-- Phil Marti Clarksburg, MD

Page 60, "Are Distributions Taxable?"

I believe if you open the roth and are not 59-1/2, then the money had to age 5 years to avoid penalty. JOE

It's there in the discussion of ordering rules, but maybe a "picture" will be easier. Get Form 8606 and its instructions and check out the portion where you report nonqualified Roth distributions and compute the taxable portion.

-- Phil Marti Clarksburg, MD

I asked this question before and I am still confused.

I have had a (small) Roth in my Credit Union for over 10 years. My understanding is that should I open another Roth say at Schwab and fund it from earned income, then I am already covered by the 5 year wait period. Is that correct? But if I fund it by converting some or all of my existing Traditional IRA (also at Schwab) then the 5 year wait begins anew. Is that correct?

--

-Ernie-

Yes. One 5 year period for all Roth accounts. BTW, you couldn't have a Roth more than 10 years old since they first appeared in 1998. Make sure the credit union account you referenced is really a Roth.

No. One 5 year Roth period, period.

What becomes an issue with conversions that's not an issue with contributions is the premature distribution penalty. It's a different 5 year peiod than the plain vanilla Roth 5 year period, and it applies only if you're under 59 1/2. If you're under 59 1/2 the conversion must age 5 years before you can withdraw without penalty. If you're over 59 1/2 and have met the Roth 5 year test, all distributions from any Roth account, regardless of how it was funded, are "qualified" and, thus, tax-free.

-- Phil Marti Clarksburg, MD

Yes, it is a Roth. It just _seems_ like it was 10 years ago :-)

OK. That's the part I was confused about. Thanks.

--

-Ernie-