The Powerful Roth IRA
If you have listened to our videos or webinars or read a previous blog, you know we are fans of the Roth IRA and Roth 401(k). Why wouldn’t we be? Pay income tax on the Roth contribution, then make your favorite investment and watch it grow income tax-free inside the Roth account. After you reach the age of 59 ½ and have held your Roth account for at least five years, you can take a distribution of part or all the account’s holding all INCOME TAX FREE. If income taxes went up, no problem, you won’t pay income tax. If the asset grew in value, good for you! You won’t pay income tax on the increase in value, no matter how big. A Roth IRA is not a “tax postponement” tool with many rules like a 1031 Exchange. A Roth is an income tax-free tool.
I Need to Wait Until Age 59 ½ and Have the Account for 5 Years?
Let’s look at this together.
Q: Must the Roth IRA hold the same investment the whole time?
A: NO. Your Roth IRA can buy or sell, an invest anytime you like. This gives you great flexibility. Hence, there is no asset holding period.
Q: Must I replace the asset the Roth sells with a “like asset” as required by a 1031 Exchange?
A: NO. Times change and so do investments. Invest in what is best for your future.
Q: I have a Roth IRA at a big mutual fund company. Won’t I need to keep the account in one place to get the benefits?
A: NO. You can transfer your Roth account to fit your needs. If you have a four-year-old Roth at a brokerage firm and want to transfer it to IRA Club, we will start counting the five years from the time the Roth was originally opened at the previous firm.
Q: Something came up, I really need some money however, I am not yet 59 1/2. Doesn’t having a Roth account lock me in?
A: NO. Let’s say you have contributed $80,000 (over time) to your Roth account. It is now worth $140,000. You may withdraw up to the amount of your contribution anytime you want with NO PENALITY. At any time, you may withdraw the full amount of your contribution anytime without penalty.
Q: Are there other penalty-free withdrawals I can make that could be greater than the amount of my contribution?
A: YES!
- Higher education for yourself, children, or grandchildren. This includes tuition, books, supplies, fees, and housing.
- Unreimbursed medical expenses exceeding 7.5% of your AGI.
- IRS fines or levies.
- Damages caused by a qualifying disaster.
- To pay the cost of childbirth or adoption.
- Up to $10,000 to buy, build, or rebuild a first home. (Sorry, this is not for a second home or vacation home)
- Same as above for the first home for a child or grandchild.
- Same as above even if this is not your first home however, you have not owned a home more than 24 months.
- Emergency personal expense distribution (EPED).
- Domestic abuse victim distribution (DAVD).
- Certain distributions to qualified military reservists called to active duty
Q: The above sounds very liberal, are there any negatives to withdrawing funds before age 59 ½ and having the Roth account for five years?
A: Yes, there are two.
- There is less money in your Roth account to grow income tax fee.
- Such withdrawals are considered distributions and cannot be replaced.
Q: When am I too old to convert my IRA or Solo 401(k) to a Roth?
A: There is no age limit. You simply need to call the IRA Club office and complete some simple paperwork. Remember, a conversion to a Roth account is a taxable event, so the sooner the better.
Deathbed Roth Conversions – We have not performed any of these, however, we have completed Late in Life Roth Conversions. Why? Often times, older clients go to a tax attorney or accountant to be sure their estate was in good order. The tax professional many times will suggest a Roth conversion ASAP. Better you pay the taxes than your children who inherit your IRA or Solo 401(k).
As you can see, there are many benefits to having a Roth IRA. Please work with your CPA to see if converting is right for you.
For information about a Self Directed IRAs, Solo 401(k)s, or alternative investments,
call IRA Club at 312-795-0988 or click here to schedule a call.
Disclaimer:
IRA Club offers no investments, products, or planning services. Therefore, please consult your attorney, tax professional, financial planner, and any other qualified person before making any investments. Be advised that IRA Club does not evaluate, review, monitor, recommend, warrant, guarantee, or otherwise endorse the legality, tax treatment, propriety, performance, or reliability of any investment, service, statement, opinion, or other representation provided with respect to the investment opportunities listed on its site or their sponsors or providers. IRA Club has no financial arrangement, partnership, joint venture, or other affiliation with the sponsors or providers of these investments. IRA Club shall not be liable for any misinformation, misrepresentation, negligence, act, omission, investment results, or any wrongdoing with respect to any of these investments or their sponsors or providers.
