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Originally Posted by Briangreen
#1;My Roth IRA has a balance of $126K. Of this, $24K is my original contributions made between 1999 & 2009, the rest is gains. My understanding is that I can withdraw my contributions with no tax consequences which in my case, could is $24K.
#2;Is there anything that I need to watch out for before I make the withdrawal? |
#1;As you can see, you made your R-IRA contributions on an after-tax basis. The benefit of a R-IRA, as opposed to a traditional IRA, is that you do not owe taxes on withdrawals in most instances. In a few cases, however, you would owe regular taxes on a portion of your withdrawal at a rate determined by your income bracket and a 10-percent penalty tax. You will never owe regular federal or state taxes on R-IRA withdrawals of money you have had in your account for at least five calendar years. Five "calendar years" means that if you put money in your account at the end of 2007, you may withdraw it at any time in 2011 since that is the fifth calendar year. At that point, all withdrawals become "qualified distributions," which are not taxable. Likewise, any withdrawal you make after turning 59 1/2 is not subject to taxes. For withdrawals that do not meet either of those two criteria, a withdrawal is not taxable if you need the money to purchase a first home, have suffered a disability or have died and bequeathed your Roth IRA to a beneficiary. Even if your circumstances dictate that your R-IRA withdrawal is taxable, you can avoid paying tax by limiting the amount of your withdrawal. You would not owe tax on amounts you contributed, only on the earnings your contributions generated, according to the IRS. If you have contributed $24K and the value of your account has grown to $126K, for example, you can withdraw $24K at any time and under any circumstances without owing taxes after tax dollars. However, a portion of funds you have converted or rolled over from a 401k or traditional IRA are taxable if the money has not been in your account for five calendar years. In addition to regular taxes, you should consider whether you owe the 10 percent early w/d penalty tax. The same exceptions that get you out of paying regular taxes on an early withdrawal apply to the penalty: disability, death of the account owner and a first-time home purchase. You also can avoid the penalty if you arrange to receive a series of equal payments based on your expected life span or need the money to pay for out-of-pocket medical costs, medical insurance premiums if you have lost your job, higher education expenses or an IRS levy; or if your withdrawal is a qualified reservist distribution.
#2; As mentioned above.