?? About IRA Withdrawal

[longtimeclone]

Ok; thanks - this would be a deal killer. But it's worth double-checking with my tax attorney friend to confirm.

From everything I have read, you will get the amount you request because it is being treated as a rollover which is a qualified distribution. I would talk with an advisor because I think you might have to put it into another like account and I don't know if you can simply put it back into the same one.

Also, once you do a distribution there is a period of at least a year before you can distribute the money in the account again or else you will be subject to penalties on the second distribution.

[Dopey]

You can withdraw contributions (money you've deposited - not earnings) from a Roth IRA at any time without paying taxes or penalties. This is reason #500 why everyone in the USA should be putting as much money as possible into their Roths, since it can essentially double as an emergency fund.

I'll save the comments judging the mertis of using a Roth IRA to buy a car for others.

Not really that cut and dry in my opinion. It can be argued that traditional IRAs are better for some individuals.

[cytech]

Not really that cut and dry in my opinion. It can be argued that traditional IRAs are better for some individuals.

I was recently trying to decide since I am self employeed if a SIMPLE IRA may be a better option than a Roth IRA. I already have a Roth but could keep that and start a second one too. Anyone have any opinions on that?

[Dopey]

I was recently trying to decide since I am self employeed if a SIMPLE IRA may be a better option than a Roth IRA. I already have a Roth but could keep that and start a second one too. Anyone have any opinions on that?

First off, regardless of which type of IRA you own, you can only contribute $5500 to IRAs total in 2013.

Traditional IRAs are generally better if you expect to be in a lower tax bracket in retirement than you currently are now. Also, you have the choice of converting the IRA to a Roth at any time.

Roth's are obviously considered better if you expect to be in a higher tax bracket during retirement. I don't think they require minimum withdraws either, where Trad IRA's require minimum withdraws at some point, 59.5 maybe?

I have a trad 401k and a Roth IRA. I'm in the 25% tax bracket, and it's anyone's guess what tax rates will be when i retire. I figure at the very least, my retirement funds are "tax diversified."

[Ry4Cy]

I was recently trying to decide since I am self employeed if a SIMPLE IRA may be a better option than a Roth IRA. I already have a Roth but could keep that and start a second one too. Anyone have any opinions on that?

Stick with the Roth. YOu can't put $5500 in the Roth and $5500 in a traditional so just stick with the Roth.

[capitalcityguy]

From everything I have read, you will get the amount you request because it is being treated as a rollover which is a qualified distribution. I would talk with an advisor because I think you might have to put it into another like account and I don't know if you can simply put it back into the same one.

Also, once you do a distribution there is a period of at least a year before you can distribute the money in the account again or else you will be subject to penalties on the second distribution.

The fact that he would be requesting the $5,000 to be used to give to his brother as cash, indicates it is NOT a qualified (i.e...qualified to continue tax deferral) distribution and thus would be subject to taxation (and possibly early withdrawal penalty). He can recapture the qualfied status for the $5,000 if within 60 days he rolls the funds back into an IRA.

The only way I believe he can get the $5K out whole (without being subject to withholding) is to do a direct rollover to another qualified plan (e.g....401(k), IRA) but in the end, this would be a useless exercise as he doesn't get accesss to ANY of the $5K going this route.

Someone mentioned Roth IRA. Generally if someone is asking about an IRA and they don't mention it is a Roth, it is assumed by most they it is a traditional IRA. Yes....the whole discussion changes if this is a Roth IRA.

[VeloClone]

First off, regardless of which type of IRA you own, you can only contribute $5500 to IRAs total in 2013.

Traditional IRAs are generally better if you expect to be in a lower tax bracket in retirement than you currently are now. Also, you have the choice of converting the IRA to a Roth at any time.

Roth's are obviously considered better if you expect to be in a higher tax bracket during retirement. I don't think they require minimum withdraws either, where Trad IRA's require minimum withdraws at some point, 59.5 maybe?

I have a trad 401k and a Roth IRA. I'm in the 25% tax bracket, and it's anyone's guess what tax rates will be when i retire. I figure at the very least, my retirement funds are "tax diversified."

Our financial advisor suggested that the traditional IRA is good for regular living expenses while the Roth can then be used for large purchases; with the Roth withdrawing and plopping down a bunch of money for a big trip or a car doesn't end up killing you on taxes.

[CycloneGB]

First off, regardless of which type of IRA you own, you can only contribute $5500 to IRAs total in 2013.

Traditional IRAs are generally better if you expect to be in a lower tax bracket in retirement than you currently are now. Also, you have the choice of converting the IRA to a Roth at any time.

Roth's are obviously considered better if you expect to be in a higher tax bracket during retirement. I don't think they require minimum withdraws either, where Trad IRA's require minimum withdraws at some point, 59.5 maybe?

I have a trad 401k and a Roth IRA. I'm in the 25% tax bracket, and it's anyone's guess what tax rates will be when i retire. I figure at the very least, my retirement funds are "tax diversified."

Our financial advisor suggested that the traditional IRA is good for regular living expenses while the Roth can then be used for large purchases; with the Roth withdrawing and plopping down a bunch of money for a big trip or a car doesn't end up killing you on taxes.

These two things right here. Solid advice.

[capitalcityguy]

The only wild card with Roth is having faith the the gov't won't change the rules on you when the country is drowning in debt due to unsustainable social programs. In 10 , 20 , 30 years people are going to have HUGE dollars saved in Roth accounts growing tax free each year and zero tax revenue scheduled when people pull their money out. Wil DC keep their hand off of this pile of cash??? There was a time when it was unthinkable that social security benefits would ever be taxed. How'd that work out?

[longtimeclone]

The fact that he would be requesting the $5,000 to be used to give to his brother as cash, indicates it is NOT a qualified (i.e...qualified to continue tax deferral) distribution and thus would be subject to taxation (and possibly early withdrawal penalty). He can recapture the qualfied status for the $5,000 if within 60 days he rolls the funds back into an IRA.

The only way I believe he can get the $5K out whole (without being subject to withholding) is to do a direct rollover to another qualified plan (e.g....401(k), IRA) but in the end, this would be a useless exercise as he doesn't get accesss to ANY of the $5K going this route.

Someone mentioned Roth IRA. Generally if someone is asking about an IRA and they don't mention it is a Roth, it is assumed by most they it is a traditional IRA. Yes....the whole discussion changes if this is a Roth IRA.

I know it is the internet but I have found similar things said like this:

Take Out A Short-Term Loan From Your IRA | Bankrate.com

I think if you phrase it as I am rolling over $5k into another account instead of phrasing it as I am taking the money out as a short term loan. Also a rollover does not become a non-qualified distribution until after the 60 day period. As long as the trustee will write a check for the rollover to the individual and not to the institution, I don't think there would be a problem.

[simply1]

The only wild card with Roth is having faith the the gov't won't change the rules on you when the country is drowning in debt due to unsustainable social programs. In 10 , 20 , 30 years people are going to have HUGE dollars saved in Roth accounts growing tax free each year and zero tax revenue scheduled when people pull their money out. Wil DC keep their hand off of this pile of cash??? There was a time when it was unthinkable that social security benefits would ever be taxed. How'd that work out?

Considering the taxes were paid already, which is why they grow tax free, I'd hope they wouldn't then change to a double tax, but who knows.

[Dopey]

Our financial advisor suggested that the traditional IRA is good for regular living expenses while the Roth can then be used for large purchases; with the Roth withdrawing and plopping down a bunch of money for a big trip or a car doesn't end up killing you on taxes.

Your financial adviser suggested to use your IRA's for regular living expenses or vacations??

[Dopey]

The only wild card with Roth is having faith the the gov't won't change the rules on you when the country is drowning in debt due to unsustainable social programs. In 10 , 20 , 30 years people are going to have HUGE dollars saved in Roth accounts growing tax free each year and zero tax revenue scheduled when people pull their money out. Wil DC keep their hand off of this pile of cash??? There was a time when it was unthinkable that social security benefits would ever be taxed. How'd that work out?

You could say the same thing about the Trad IRA. The wild card there is that by the time you retire, the lowest tax bracket might be 45%.

[capitalcityguy]

Considering the taxes were paid already, which is why they grow tax free, I'd hope they wouldn't then change to a double tax, but who knows.

Agree it would be a travesty, but a couple points need clariication. Roth IRA's don't "grow tax-free" because "taxes were paid" already. They grow tax free because that is current law. The growth is earnings that aren't subject to taxation....ever. That is the beauty of Roth's under the current tax code. There are other retirement account available where you've "paid taxes already" but unlike a Roth, the earning still get taxed when you withdrawn them. (e.g....traditional IRA where contributions didn't qualfiy for tax deduction, aftertax (non-Roth) contributions to 401(k)s to name a couple).

In full disclosure, I'm not anti-roth by any means. I'm currently saving for retirement using both pre-tax (401(k) and after tax (Roth-K and Roth IRA).

IMHO, it is less risky not going all in one way (ie...all pretax or all aftertax) when saving for retirement (especailly if you are a decades away from retirement.

[capitalcityguy]

I know it is the internet but I have found similar things said like this:

Take Out A Short-Term Loan From Your IRA | Bankrate.com

I think if you phrase it as I am rolling over $5k into another account instead of phrasing it as I am taking the money out as a short term loan. Also a rollover does not become a non-qualified distribution until after the 60 day period. As long as the trustee will write a check for the rollover to the individual and not to the institution, I don't think there would be a problem.

Yes...and there-in lies the problem. The IRA trustee (or custodian) is responsible for the tax reporting (ie...producing the 1099R which also includes sending notification to the IRS of the distribution). Based on experience, I would guess most are NOT going to produce a check made out to an individual and still record the distribution as a rollover. Rather, if the distibution is to be tax reported as a rollover (and thus avoid withholding), the trustee will require the check be made out to the financial instituation receiving the rollover.