ROTH questions

Sorry to ask such obvious questions. I tried reading the IRS publications but they are too much for me to understand.

Can I still open a ROTH IRA for year 2006?

If I contribute $4000 when can I withdraw any or all of that original $4000? Is there a penalty if I am not 59 1/2? Thanks

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Reply to
Jane
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Yes, through April 17.

Any time you like.

Not on withdrawn contributions.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

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

15, 2007 if you file for an extension. So yes, you can still open a Roth for 2006. When you contribute to a Roth IRA, you can take out your contributions without tax or penalty up to the amount you contributed. There is no age restriction for this. If you converted a traditional IRA to a Roth IRA, you have to wait 5 years before being able to draw out money tax or penalty-free. If you have a Roth IRA that has both contributions and conversion money in it, your withdrawals are considered to be first from your contributions, then from your conversions. Dennis
Reply to
bono9763

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

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-- John D. Goulden

Reply to
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.

590, page 58.
Reply to
Shyster1040

Yes

not less than 5 years and >59 1/2

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

Yes

Reply to
San Diego CPA

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.

Reply to
taxxcpa

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

Reply to
Jane

(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?)

Reply to
Harlan Lunsford

Instructions say "Not including extensions."

Reply to
doshan

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

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

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

Reply to
Phil Marti

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

Reply to
Phil Marti

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

Reply to
joetaxpayer

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

Reply to
Phil Marti

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-

Reply to
Ernie Klein

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

Reply to
Phil Marti

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-

Reply to
Ernie Klein

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