HW "Skip" Weldon wrote:
- quote -

Easier to reply to your reply than the former.

A ROTH never violates tax planning, whether TP 101 or TP
202. For everything there is a season. (Hmmm. I like
that.)

A time to defer and a time to pay;
A time to convert and a time to stay;
A time to rise, and a time to duck,
A time to love and a time... (uh oh! nevermind)

TTP (Total tax planning) is the key phrase. I've had
occasion to plan ahead for a client even over a 30 year time
horizon. And even for myself my horizon is also about the
same.

For someone who can deduct an IRA it makes sense. For
others who are prohibited from contributing to a tax
deductible IRA, the ROTH makes more sense. In fact that's
all I do these days on a personal level. (My corporation can
still contribute to the SEP however.)

A ROTH is a nice way to leave a sizeable estate to your
children.

ChEAr$,
Harlan Lunsford, EA n LA

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"HW \"Skip\" Weldon" <skip5700removet...[at]hotmail.com> wrote:

- quote -

Well, Tax Planning 101 would say that the goal is to
postpone taxation as long as possible. $1 today is worth
more than $1 tomorrow or 20 years from now. The traditional
IRA follows that rule: deduct the contribution (don't pay
tax on that income today), pay tax on it (and on the
accumulated earnings) when you withdraw it later. The Roth
IRA turns that on its head: pay the tax now and put the
money away to accumulate earnings, and when you withdraw it
there will be no tax on either the amounts contributed (you
already paid the tax on that) or on the accumulated
earnings. Of course it's the forever tax-free earnings that
make the Roth attractive. But it's more sophisticated than
Tax Planning 101. It's more like 102, or maybe even 201
<G> .

Whether the traditional or the Roth turns out to be more
favorable in the end, it seems to me, depends on a lot of
things, including tax rates at the time of contribution and
at the time of withdrawal, the performance of the markets in
the interim, and so on.

Looking at it from the point of view of retirement, I'm sure
I have more capital now than I would have had if I had saved
after-tax dollars for retirement instead of putting my
savings into a 401(k). But if I had invested after-tax
dollars, I wouldn't have to pay tax on that money now,
whereas I pay tax on every dollar I withdraw (as I'm
required to do, being over 70-1/2) from my 401(k). Am I
better off, net, than I would have been if I'd used a Roth
type vehicle (if one had existed) when I was working? Well,
as a quick and dirty measure, I started contributing to my
401(k) in 1987, when the Dow was about 2,500 (and almost
immediately dropped to around 1,700 in October of that
year). Now the Dow is over 12,000. My accounts benefited
from the huge increases in equity values in the 1990s and
the past couple of years. I'd guess, all else being equal
(which of course it never is), I'd probably have been better
off, net, with a Roth. Plus I'd have the advantage of
having paid the tax on my contributions, and forgotten all
about that pain, long ago, rather than suffering the pain
today <G> .

Katie in San Diego

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"HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> writes:
- quote -

I suspect the original poster means the rule of thumb about
always deferring incurrent tax whenever possible. Which is
good as far as it goes, but is certainly not absolute.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"Benjamin Yazersky CPA" <johndoe[at]nowhere.com> wrote:

- quote -

This is wrong on a couple of fronts. First, it may be a
qualified distribution from the Roth. Even if it's not a
qualified distribution, the ordering rules apply, which
could result in zero taxable income from the distribution.

All discussed in Pub 590.

--
Phil Marti
Clarksburg, MD

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<hollyannie2001[at]yahoo.com> wrote:

- quote -

Roth distributions that are not in excess of basis are not
taxable or have penalties if were contributions or
conversions over 5 years, so unless your amount withdrawn
dips into earnings only then would you have taxable roth
distributions with or without the house, the first time home
buyer exclusion is only an exclusion for penalty, which if
you dipped into earnings and had taxable distributions you
would have being under 59.5 years old, and could exclude up
to 10k from the penalty but would still be taxable.

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"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote :

- quote -

Incorrect. Once the 5 year test is met, a $10,000 lifetime
distribution for first-time home purchase is a qualified
distribution regardless of age. See Pub 590.

--
Phil Marti
Clarksburg, MD

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"bono9763[at]yahoo.com" <bono9763[at]yahoo.com> wrote:

- quote -

The form I got from my broker when I did something similar
had the Q for qualified already on it. Do I need to do
anything else. TaxCut seemed happy with the outcome, but I
don't know if the IRS would be (g).

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hollyannie2001[at]yahoo.com wrote:

- quote -

You lost me in the first paragraph. The word "IRA" means
Individual Retirement Account, whether it be a traditional
or Roth IRA. As such, one can not gift an IRA to another
individual. Are you sure it wasn't just left to your
husband when the uncle died? If inherited, there were
certain minimum distribution rules that your husband should
have been following.

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Benjamin Yazersky CPA"

- quote -

In what way does Roth violate tax planning 101?

-HW "Skip" Weldon
Columbia, SC

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hollyannie2...[at]yahoo.com wrote:

- quote -

You need to use form 8606 to determine the taxable amount of
the distribution. You use the 1st time homebuyer $10000
distribution you qualify for on that form to reduce your
taxable amount.

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<hollyannie2001[at]yahoo.com> wrote:

- quote -

Recently saw a similar issue debated in another forum. It
pretty much came down as follows.

The early withdrawl is taxable income. The exception for 1st
time home buyer is that you don't have to pay the 10% early
withdrawl penalty.

.... sometimes I wonder why anyone would want a Roth in the
1st place - it violates tax planning 101

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] > > -----> real address on hobokeni or hobokenx <-----

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hollyannie2001[at]yahoo.com writes:

- quote -

How was the Roth "a gift" from his uncle? You can't
gift Roth IRAs.

- quote -

Is he over 59.5? Has he had a Roth for at five years? If
not, the custodian is correct -- it's *not* a qualified
distribution.

- quote -

The custodian doesn't know what you did with the money
and it's none of their business.

- quote -

Exactly correct.

- quote -

You don't "prove" it to the IRA custodian, you "prove"
it to the IRS. When you fill out Form 5329 you will
say that you're not subject to the early withdrawal
penalty because of what you used the distribution for.
If the IRS ever comes calling over that (they very
likely won't), you show them the paperwork on buying
the house, the deposit record for depositing the
distribution check, and the copy of the certified check
you used for the down payment.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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hollyannie2...[at]yahoo.com wrote:

- quote -

Of course the investment company doesn't know what you did
with the money. You have to tell the IRS yourself what you
did with it. You report this on Form 8606. Your tax preparer
should have known this, or if you are doing your own taxes,
maybe you need some help or a better program.

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<hollyannie2001[at]yahoo.com> wrote:

- quote -

I don't know whether it makes any difference, but your
statement about the origin of the Roth can't be true. It
wouldn't be a bad idea to nail that down rather than
guessing.

- quote -

They don't. You will account for this in Part III of Form
8606 on your 2006 return. Assuming it really was a
qualified Roth distribution, the bottom line there is zero
taxable. You wind up with $10,000 on line 15a of the 1040
and zero on 15b.

--
Phil Marti
Clarksburg, MD

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My husband and I purchased our first home in 2006. As part
of the down payment we used $10K out of his Roth IRA, which
was a gift to him from his uncle about 10 years ago.

Now that it is tax time, the form that my husband received
from the investment company holding his Roth IRA says that
this was not a qualified distribution. They sent the tax
form indicating that we should be penalized just as though
we took this money out to go on vacation with (or whatever).

He called today and was told summarily on the phone that
they will not issue another tax form. They say they have no
way of knowing we used the money toward a home purchase.

I suppose I could ask my mortgage broker to vouch for us?
Beyond that, I am really not sure how I would prove this
(and if it would make a difference). The distribution was
basically a check made payable to my husband, which we
deposited in our savings account from which we drew the
certified check for the entire down payment amount.

Has anyone experienced anything similar? I'm not sure what
to do and this is a difference of thousands of dollars in
our tax bill.

Thanks in advance for any advice.

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