The Powerful Roth IRA
If you have listened to our videos or webinars or read a previous blog, you know we are fans of the Roth IRA and Roth 401(k). Why wouldn’t we be? Pay income tax on the Roth contribution, then make your favorite investment and watch it grow income tax-free inside the Roth account. After you reach the age of 59 ½, and have held your Roth account for at least five years, you can take a distribution of part or all of the account’s holding all INCOME TAX FREE. nIf income taxes went up, no problem, you won’t pay income tax. If the asset grew in value, good for you; you won’t pay income tax on the increase in value, no matter how big. A Roth IRA is not a “tax postponement” tool with many rules like a 1031 Exchange. A Roth is an income tax-free tool.
I Need to Wait to Age 59 1/2 and Have the Account for 5 Years?
Q: Must the Roth IRA hold the same investment for that whole period?
A: NO. Your Roth IRA can buy, sell, an invest anytime you like, this gives you great flexibility as investment growth rate changes. Hence, there is no asset holding period.
Q: Must I replace the asset the Roth sells with a “like asset” as required by a 1031 Exchange?
A: NO. Times change and so do investments. Invest in what is best for you and your future.
Q: I have a Roth IRA at a big Mutual Fund Company. Won’t I need to keep the account in one place to get the benefits.
A: NO. You can transfer your Roth account to fit your needs. If you have a four-year old Roth at a Brokerage firm and want to transfer it to IRA Club we will start counting the five Years from the time the Roth was originally opened at the previous firm.
Q: Something came up, I really need some money however, I am not yet 59 1/2. Doesn’t having a Roth account lock me in?
A: NO. Let’s say you have contributed $80,000 (over time) to your Roth account. It is now worth $140,000. You may withdraw up to the amount of your contribution anytime you want WITH NO PENELITY. (At any time, you may withdraw the full amount of your contribution anytime without penalty.)
Q: Are there other “Penalty-Free Withdrawals” I can make that could be greater than the amount of my contribution
A: YES!
- To pay for Higher Education for yourself, children, or grandchildren. This includes Tuition, Books & Supplies, School Fees, Housing.
- For unreimbursed Medical Expenses exceeding 7.5% of Adjusted Gross Income.
- To pay an IRS Fine or Levy.
- To pay for damages caused by a qualifying Disaster.
- To pay the cost of Childbirth or Adoption.
- Up to $10,000 to Buy, Build or Rebuild a First Home. (Sorry, this is not for a Second home or Vacation home.)
- Same as above for the first Home for a Child or Grandchild.
- Same as above even if this is not your first home however, you have not owned a home 24 for more than months.
- Emergency personal expense distribution (EPED)
- Domestic abuse victim distribution (DAVD)
Q: The above sounds very liberal, are there any negatives to drawing funds before age 591/2 and Five years.
A: Yes, there are two.
- There is less money in your Roth account to grow Income tax Fee.
- Such withdrawals are considered “Distributions” and cannot be replaced.
Q: When am I too old to convert my IRA or Solo 401(k) to a Roth?
A: There is no age limit. You simply need to call the IRA Club office and complete some simple paperwork. Remember, a conversion to a Roth account is a taxable event, so the sooner the better (before your account grows).
Deathbed Roth Conversions – We have not performed any of these, however, we have complete “Late in Life’ Roth conversations. Why, it seems they went to a Tax Attorney or Account to be sure their Estate was in order. The tax professional many times will suggest a Roth Conversions ASAP. Better you pay the taxes then your children who inherit your IRA or Solo 401(k).
