IRA Rules

Posts Tagged ‘roth ira rules for withdrawal’

Question: 401K Rollover to Roth IRA after 60 years old Rules ?

>If you had a 10-year, Employer Matched 401K Plan, and you are over 59 & 1/2 years old (so you can rollover your 401K to an IRAs while still employed), lets say over the decade of having that 401K; you contributed a total of $40K (4K/yr), your employer matched & contributed $40K (4K/year), and you earned $20K (2K/year), so you have $100K Total in your 401K, and you plan to rollover to a Roth IRA – How much of this $100K 401K is rolled over to ROTH IRA ?

> Will it be taxed ? If so, how much ?

> Now, is this total amount that has been rolled over into the Roth IRA, considered an original contribution, therefore qualifying for penalty-free any time withdrawals in the future?***

***Since they are contributions and not earnings, the 5-year rule does not apply, and since Roth IRAs are taxed up front, there are no tax penalties on withdrawing contributions.

Answer: This is a big question, and some of my answer will be more general than not. If you live in Colorado (as investment licenses are state-based), contact me and I can go into more detail, but:

You can do a partial or full roll-over into an IRA. The amount would be up to you.

If you roll it into a non-qualified (ROTH) IRA, the entire ammount would be taxable as ordinary income, assuming your contributions into the 401(k) were pre-tax. This has a bigger impact than it sounds, because in addition to being taxed on the $100K, you income for the tax year goes up by $100K, and you could move into a higher tax bracket, which would impact all of your income for the year. As a note, the taxes on the $100K can be spread out over 3 years if you so choose.

After you have the ROTH set up, any future withdrawls would be tax-free.

Charles Schwab Roth IRA Conversion Q&A: How Does a Roth IRA Work?

Question: Roth IRA and your income?

Well, the rules are if you earn and income under 100,000 as a single. Well, what if you Make a Roth IRA then you land a job making $120,000 a year….after you setup a Roth IRA? Or let’s say you end up making it big in music and are selling billion dollar records? Will you still keep that Roth IRA?

Answer: I think you’re confused between be able to contribute to a Roth and having a Roth. You can open a Roth anytime, it is just an investment account. But to be able to contribute to it is another story. Let’s say in 2006, you made less than $95k, you will still be able to put $4k in your Roth; then in 2007, you landed a $150k job, and you file that much in your taxes, then you won’t be able to contribute anymore to your Roth. However, you still can retain your Roth with the $4k you put in the previous year along with any investment gains you might have made.

Retirement Plan: How much is your Roth IRA or 401(k) really worth?