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generic roth ira question

L1: generic roth ira questionI don”t trust myself so I thought I”d come to the experts. I keep reading that ROTH IRA contributions can be withdrawn without penalty at any time. Earnings, however, can only be withdrawn without penalty. after age 59 1/2 and at least 5 years since the ROTH IRA was established or in other specific situation. So, if someone contributed 4000 at age 48 and took only the original $4k out at age 50, there would be no penalty? 2006-08-04 16:18, By: squeaky, IP: [71.129.85.129]
L2: generic roth ira questionYou are correct, no tax or penalty applies. Of course, the contribution must be a regular contribution and not a conversion contribution.2006-08-04 22:14, By: Alan S., IP: [24.116.165.157]

L2: generic roth ira questionSo, if someone contributed 4000 at age 48 and took only the original $4k out at age 50, there would be no penalty?
Well, it depends on your perspective as to who is doing the penalizing. From the IRS perspective, there”s no penalty. But from the standpoint of penalizing your investments, taking $4k from your Roth after only 2-years is like borrowing from your 401(k). In both of these situations you are “penalizing” yourself. The purpose of using the Roth IRA for your investments is to accumulate funds for your retirement, and the Roth is an excellent vehicle, if you let it work for you. But if you put the money in and then take it out, why did you go to the trouble of setting up the Roth in the first place.
If you need funds for a short-term situation … or even for a long-term situation … my suggestion is to look elsewhere and leave your Roth alone.
Jim2006-08-07 14:45, By: Jim, IP: [70.184.2.72]

L2: generic roth ira questionJim, I absolutely agree with you. I was just checking my understanding of the regs. I further learned that although the principal is not subject to income tax at a later date, the earnings are. I presume this is because they have never been taxed.2006-08-07 16:37, By: squeaky, IP: [71.129.85.129]

L2: generic roth ira questionI believe your basic question has been clarified, and you are right about the remaining earnings if they are eventually removed before becoming qualified.
Jim has made a good point, but you might still be better off than if you had never made the Roth contribution in the first place. For example, the withdrawal feature of the Roth makes it a potential repository for emergency funds that the taxpayer feels could be needed. Even if it turns out those funds are needed, and withdrawn after only two years, you still have started the 5 year Roth clock, and still hopefully have a few dollars of earnings left in the account that can eventually be tax free. As Jim stated, you hope that you don”t need to take that distribution, but you are still better off than if you had simply left the funds in a taxable account.
Of course, this is all only marginally applicable to a SEPP, since while a Roth can be used for a SEPP, the ordering rules for distributions make it unnecessary to set one up until after all regular contribution balances have been distributed. Then, the SEPP would eliminate the penalty on any conversions under 5 years and earnings as they are distributed. I imagine that using a Roth in a SEPP is extremely rare, and occurs only if there are no TIRA assets available.
2006-08-08 00:48, By: Alan S., IP: [24.116.165.157]

L2: generic roth ira questionthanks for all the commentary guys.i confirmed my understanding and may have helped someoneget started very late on aretirement plan. i have a friend who has no retirement and was surprised to learn she could start with a very small amount of money. i also thought she might get into a jam later and have to take out the principal so the scenario of having tax deferred earnings could apply to her. 2006-08-08 10:11, By: squeaky, IP: [71.129.85.129]

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