Dick Adams <rdad...[at]smart.net> wrote:

- quote -

1. Maximum contributions to a Roth are the same as a
traditional IRA: the lesser of your earned income or $4,000
($5,000 if you are over 50.) If you earn too much, though,
you are prohibited from contributing to a Roth ($110,000 for
single, $160,000 for MFJ)

2. There is no penalty for early withdrawal of
contributions. When you take money out of a Roth, your
contribution is considered to be withdrawn first. So if you
contributed $10,000 to the Roth over several years and it is
now worth $12,000, you can take out the $10,000 without
penalty. Anything more than that will incur a 10% penalty.
So if you took out the entire $12,000, you would have a $200
penalty (plus have to pay tax on the $2,000).

3. Exceptions to the penalty are listed on Form 5329. The
common ones include first time home buyer (up to $10,000),
qualified higher education expenses (tuition, fees, books,
room & board), medical expenses that exceed 7.5% of your
AGI. So there won't be a penalty on the withdrawal of any
earnings, but you will still have to pay tax on the
withdrawal if you are under the age of 59-1/2 (except for
the first-time home buyer. If the account has been open for
at least 5 years, then the withdrawal of earnings is
tax-free also.) As with many tax questions, the answer is
not always easy!

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Dick Adams <rdadams[at]smart.net> writes:

- quote -

$4000 hard cap, but can't contribute more than your earned
income (though the contribution funds themselves can come
from savings, gifts, etc.).

- quote -

No penalty or tax for withdrawing contributions.
Withdrawals of earnings are taxable plus get hit with the
10% penalty. Note that unlike a trad IRA, withdrawals are
deemed to come from contributions first, then earnings.

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

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

www.rothira.com

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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Dick Adams wrote:

- quote -

Everything you need to know about Roth IRAs from Kaye Thomas:
http://www.fairmark.com/rothira/index.htm

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Dick Adams wrote:

- quote -

$4K (because he is not 50) He can withdraw his deposit
without penalty, but earnings would be taxed and 10% penalty
if he's under 59-1/2

More important, teach him the 'rule of 72'. At 10%, money doubles in 7
years. From now till 66, this money can potentially double 7 times. 2^7
is 128. His $4000 can grow to over $500,000. Ok, this ignores inflation.
It may 'only' be worth $128K.

Tell him if he puts the $4000 away each year for 8 years, he will be
ahead of the friend who starts at 24 and puts away $4000 every year for
the rest of his life.

JOE

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rdadams[at]smart.net (Dick=A0Adams) posted:

- quote -

Currently $4,000 ($5,000 if age 50 or older). Of course,
emphasize they are _not_ deductible. The payoff comes much
later -- 43+ years, in his case; but WOW, think of the
compounding!

- quote -

The 10% additional tax applies to "unqualified"
distributions (e.g., excess contributions, early
distributions, etc.)

- quote -

Most important exception is distributions that are a return
of your regular contributions -- which are not includable
"in your gross income."

There are other exceptions for a first-time homebuyer up to
$10,000 (lifetime limit) ... or for distributions because
you are disabled ... or in payments to a beneficiary after
one's death (like he'd care about that).

The major benefit of a Roth, of course, is that all
_Qualified Distributions_ are not taxable -- and the major
qualifier is the Roth has been open for 5 years, and the TP
is age 59 1/2.

Smart son. Pub 590 might be excellent bedtime reading --
good sleeping aid.

Bill

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In article <f47618$phb$1[at]panix2.panix.com> ,
Dick Adams <rdadams[at]smart.net> wrote:

- quote -

Kaye Thomas wrote a very easy to read and pretty complete
tutorial.

Click here http://fairmark.com/rothira/index.htm
and then start with the Roth 101 link.

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

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My youngest, Joshua the Mercenary, is now 16, has a part-time
job. He is already cursing the IRS. With a smile on my face,
I told him it is Congress, not the IRS, with whom he should
be upset and to remember that when he votes.

I want to explain the Roth IRA to him. However, I am not
clear on the details:
- Max contributions
- penalty for early withdrawals
- excemptions to the penalty

Dick

<< ------------------------------------------------------- > << The above is intended for educational purposes only. > << It does NOT constitute legal OR professional advice. > << It cannot be used by any taxpayer, for the purpose of > << the purpose of avoiding penalties that may be imposed > << upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >