Phil Marti wrote:
- quote -


Anybody who has a ROTH account needs to keep excellent records. I mean
of all contributions, withdrawals, etc, in order to determine if and
when a withdrawal might be taxable.

I've a case right now where client has a 1099R for final distribution
from the ROTH account. All she remembers is that she started putting
either 25 or 50$ a month into it in 2000. Yes, she's under that magic
age, too.

I sure hate to take the easy way out and slap the whole 519$ on the
return, though.

ChEAr$,
Harlan Lunsford, EA n LA

"Tom" <yahoo[at]earthlink.com> wrote:

- quote -

There is no penalty, but if the Roth (not the specific
earnings/contribution) is less than 5 years old AND you withdraw earnings,
the earnings are taxable income.

See IRS Publication 590.

--
Phil Marti
Clarksburg, MD

"Herb Smith" <smithff33[at]aol.com> wrote in message
news:fh8n9v$96b$1[at]panix3.panix.com...
- quote -

period if the owner of the accoulnt is > 59 1/2 y/o?

"None" <geobrown37[at]sbcglobal.net> wrote:

- quote -

When in doubt, first see what the IRS has done (follow form
5239's flow of information).

[I'm not saying that the IRS always does it correctly, but
usually the forms aren't where they screw up.]

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"None" <geobrown37[at]sbcglobal.net> wrote:

- quote -

Yes, unless one of the other conditions for a qualified
distribution is met. See Pub 590 for those.

- quote -

I don't know how you got confused, but you got the wrong
idea about earnings somewhere along the line. Earnings
distributed from a Roth are ALWAYS taxable unless the
distribution is "qualified." As has been noted several
time, that takes more than just the 5 year aging.

--
Phil Marti
Clarksburg, MD

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

"D. Stussy" <s...[at]bde-arc.ampr.org> wrote:
- quote -

Any gains of any nature for initially originated Roth IRA
(not to be confused with conversions) are taxable for those
below 59.5 are taxable, even if the Roth is held for five
years after the 5 year clock begins............Is this
really true? My impression is that only the 10% excise tax
applies. I also understand that each conversion from a
traditional has its own 5 year application. So my confusion
with your response centers around the gains of any nature
being subject to ordinary taxes for someone not yet 59 and a
half.

George Brown

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Vic Dura wrote:
- quote -

Please stop confusing earnings with contributions and
conversions. Earnings are taxed and penalized if not
distributed in a qualified fashion.

- quote -

Each conversion has its own five year clock. After five
years, you can withdraw the converted amount (but not
necessarily earnings) tax and penalty free, as if it were a
contribution. So, this is a way to get money out of a Trad
IRA without penalty and without meeting any of the other
early distribution exceptions. But of course you did have to
pay tax on it at the beginning of the five year period, when
you converted it to a Roth.

Keeping your IRA money at one institution or spread around
at several is largely irrelevant, other than management fees
and and other benefits related to the balance in your
account at each. Generally speaking, you have one overall
Trad. IRA balance, and one overall Roth IRA balance, no
matter how many "accounts" you have split them into.

-Mark Bole

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

Vic Dura wrote:
- quote -

Maybe this will lessen your confusion. When you convert,
you pay the tax. Now that the money is in a new and ROTH
account, the clock starts ticking. Don't confuse what your
IRA earns before the conversion and think it mixes with what
the ROTH will earn after conversion.

ChEAr$,
Harlan

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

Vic Dura <vpd...[at]CLUTTERhiwaay.net> wrote:

- quote -

The taxability of funds in your Roth IRA are fully explained
in IRS Pub 590, but since you apparently missed the memo, I
will repeat them here.

Your CONTRIBUTIONS (which are made with after tax funds) can
ALWAYS be withdrawn TAX and PENALTY FREE. There is NO
holding period.

If the Roth IRA has been open for 5 tax years AND you are
age 59.5, or older, ALL distributions are TAX and PENALTY
FREE. The 5 year holding period begins on January 1 of the
first year of contributions and applies to all subsequent
contributions.

If you convert some or all of your Traditional IRA (subject
to the $100,000 AGI restriction) you start a DIFFERENT 5
year holding period before you can withdraw those funds
without PENALTY. There is no TAX due, as the conversion
resulted in this contribution being made with after-tax
funds. Each conversion starts a NEW 5 year period and
withdrawals are made on a FIFO basis. Once you turn 59.5 the
holding period becomes moot.

Earnings (with some exceptions) are taxable and subject to
PENALTY until they become QUALIFIED. That means that the
account is more than 5 tax years old (which actually could
be less than 4 calendar years from the date of contribution)
AND you have turned 59.5 years old. After that point, ALL
withdrawals are TAX and PENALTY FREE!

Withdrawals are ALWAYS made in the following order:
1) Annual contributions, made by April 15 of the year AFTER
they are credited to the account.
2) Conversion contributions
3) Earnings

If you are in a withdrawal mode, you first will withdraw (1)
until it is depleted, then (2), finally (3).

Roth IRAs are not subject to RMD withdrawal, the money can
be left alone and used as a legacy for your heirs.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

"Vic Dura" <vpdura[at]CLUTTERhiwaay.net> wrote:

- quote -

<snip
- quote -

That statement is wrong. There is only one 5-year clock for
qualified distributions, and it starts running the tax year
the first Roth contribution, cash or conversion, is made.
See IRS Publication 590.

For people under 59 1/2 and, thus, subject to the premature
distribution penalty there is a separate 5-year clock for
each conversion, but only with respect to the penalty.
(Note that these distributions are not "qualified" even
after 5 years unless one of the other conditions explained
in Pub 590 is met.)

--
Phil Marti
Clarksburg, MD

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

"Vic Dura" <vpdura[at]CLUTTERhiwaay.net> wrote:

- quote -

You've heard wrong. After 5 years, you may withdraw an
amount equal to your contributions and conversions without
tax, but the gain/growth/earnings on those amounts will be
taxable (both income tax and the 10% excise tax) unless you
reach age 59.5 or another exception applies.

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- quote -

YES

- quote -

YES

Mike

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Vic Dura wrote:

- quote -

No. You also have to be over age 59.5. If you meet both of
these tests, it's a qualified distribution.

Let's use the terms "contributions" and "earnings" to
distinguish between the two main types of money in the
account. Contributions (but not conversions from Trad. IRA)
can be withdrawn at any time without tax or penalty.
Earnings are subject to a variety of rules to determine
possible tax and penalties.

- quote -

There is a five-year rule for the initial contribution to
any Roth IRA, yes. There is a also a slightly different
five-year rule for conversions from a Trad. IRA that allows
the conversions to be withdrawn without tax or penalty after
five years, at any age.

-Mark Bole

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Vic Dura wrote:

- quote -

Well, yep! You've got the rights of it. HOWever......

since it's an IRA, remember the 10% penalty may apply on
those earnings if you've not reached the magic age.

ChEAr$,
Harlan

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

"Vic Dura" <vpdura[at]CLUTTERhiwaay.net> wrote:

- quote -

Partially. See below.

- quote -

Yes.

"Qualified" distributions from a Roth are tax-free. There's
a two-part test to determine whether distributions are
qualified. Half of that test is the 5-year aging. On top
of that, you must meet one of the conditions for qualified
distributions, as explained in IRS Publication 590. The
most common is that you're over 59 1/2 at the time of
distribution.

--
Phil Marti
Clarksburg, MD

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

Vic Dura <vpdura[at]CLUTTERhiwaay.net> wrote:

- quote -

Excuse me for replying to my own post, but I don't think I
did a good job of presenting my question.

What I am considering is converting an existing Traditional
IRA to a Roth by transferring 15% or 20% per year of the
Traditional to the Roth.

What I want to know is are the earnings from ALL
conversions from the Traditional to the Roth subject to
the 5-year aging rule, or does the rule just apply to the
FIRST conversion?

Item-4 below is what's confusing me (quoted from
http://invest-faq.com/cbc/ret-plan-roth-ira.html )

===================

1. Contributions can be withdrawn tax-free and
penalty-free at any time.

2. There is 5-year clock 'A'. Clock 'A' starts on the
first day of the first tax year in which any Roth IRA is
opened and funded.

3. Earnings can be withdrawn tax-free and penalty-free after
Clock 'A' hits 5 years and a qualifying event (such as
turning 59.5, disability, etc.) occurs.

4 Additional 5-year clocks 'B', 'C', etc. start running for
each traditional IRA that is converted to a Roth IRA.
Each clock applies just to that conversion.

===================

Item-4 seems to be referring to multiple Traditionals
converted to multiple Roths, but I'm not sure.

Thanks for any help.

--
To email me directly, remove CLUTTER.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >

vpdura[at]CLUTTERhiwaay.net (Vic=A0Dura) posted:

- quote -

Yes, those things are true -- IF your age when you make
distributions (withdrawals) is 59 1/2 + -- otherwise, only
the original contributions can be withdrawn without penalty.
(Note there are a couple of special situations, but to get
all the details, check Pub 590.)

Bill

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I have been told that the income and gains from the assets
within a Roth-IRA are, like the assets themselves, not taxed
upon withdrawal after "5-year aging". Is this correct?

I've also been told that the "5-year aging" of income/gains
only applies to the initial assets contributed to the Roth
when it is established, and not to subsequent assets added
to the Roth at a later date. Is this also correct?

Thanks for any comments. I really need a reality check on
this.

--
To email me directly, remove CLUTTER.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for 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 (2007) - All rights reserved. > << ------------------------------------------------------- >