<bearclaw[at]cruller.invalid> wrote:

- quote -

The early distribution penalty for traditional IRAs is also
waived in the same situations (medical expenses over 7.5% of
AGI, first-time home purchase, etc), so this is not a factor
favoring a Roth over a traditional IRA..

Consider whether your tax bracket will be higher now or
later when you think you might need the money. If you think
your tax bracket is lower now, contribute to a Roth, and pay
the taxes now. If you think your tax bracket will be lower
later, contribute to a traditional IRA (you will have more
available to contribute since you didn't pay those taxes!),
and pay the taxes later when you take the distribution.

Roths have some other advantages (contributions allowed over
age 70.5, no minimum distributions at age 70.5, etc). They
also have some disadvantages (distribution of earnings in
the first five years may be subject to a the penalty even if
one of the above-mentioned exceptions applies).

- quote -

"Non-qualified" Roth distributions are penalized to the
extent they are taxable. Check Pub. 590, page 59, for the
definition of "qualified". A distribution of your regular
contributions is not taxable, and thus not penalized anyway.
But a distribution of earnings is generally taxable, and
thus subject to the 10% penalty if it's not "qualified".
There are special considerations for a distribution of Roth
dollars that got there through a conversion from traditional
IRA funds.

A distribution of regular contributions shouldn't impact the
status of the earnings.

Whit Matteson

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bearclaw[at]cruller.invalid writes:

- quote -

Roth contributions can be withdrawn at any time without tax
or penalty. Roth conversions can be withdrawn at any time
without tax, but the penalty applies if it's not a qualified
distribution. Earnings can be withdrawn without tax or
penalty through a qualified distribution. All this is
covered in IRS Publication 590 and Form 8606 and its
separate instructions.

Phil Marti
Topeka, KS

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MAGI reliably ~$45K. Status, married filing jointly.

I'm considering opening a Roth investment IRA for myself. I already
have a vested 401K from my employer, spouse is named beneficiary. I
make contributions to non-working (ahem--"non-income-producing")
spouse's IRA.

Currently, AFAICT, I do not approach the federal limit on deductible
IRA contributions. So, why start a Roth? Well, I _may_ need to withdraw
part of the funds (not the earnings) before 59 1/2 years of age for
such things as medical expenses or a first-time home purchase.

Is this okay? Are Roth funds liquid without penalty? How would
withdrawals affect the tax status of the earnings?

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