Liquidating roth ira
In fact, ultimately the decision of whether to bequest a Roth or traditional IRA should be driven by a comparison of the original IRA owner’s marginal tax rate, and the expected marginal tax rate of the beneficiary in the future.
If the beneficiary’s tax rates are higher, it’s clearly beneficial for the current IRA owner to go ahead and convert the IRA, paying the taxes now at current rates, and leaving the (high income) beneficiary a tax-free account.
The Roth IRA holder will owe income taxes on any earnings withdrawn.
However, the 10 percent early withdrawal penalty tax that applies to traditional IRAs generally does not apply to Roth IRAs except in cases of failed conversions from a traditional IRA.
Just to clarify, the 10% early withdrawl penalty will only apply to earnings and not the contribution amount? If I make the withdrawl right now, will the penalty come out of my 2007 taxes or 2006?
When considering transferring IRA assets from your IRA to a new IRA, key factors that should be considered and compared between the IRAs include fees and expenses, services offered, and investment options.
Although there are several factors that determine whether a Roth or traditional IRA will be best, the dominating factor that most drives the outcome is a comparison of an individual’s current versus future marginal tax rates.
When tax rates remain the same, final wealth remains the same; when tax rates change, final wealth may be better or worse, depending on the direction of the change.
For those who retire early – e.g., in their 50s or early 60s – there is often an opportunity for Roth conversions while rates are especially low, before Social Security benefits begin (as the phase-in of taxation on Social Security benefits can dramatically increase the marginal tax rate).
I haven't made much money on it yet so I don't think it would be extremely negative. To count as a qualified distribution, a Roth IRA distribution cannot be made before the end of the five-tax-year period beginning with the first tax year for which the individual (or the individual's spouse) made a contribution to the Roth IRA.
In addition to the five-year holding period, a qualified distribution can only be made if it is: Distributions that do not meet the above requirements are considered nonqualified distributions.
In addition, he is a co-founder of the XY Planning Network, Advice Pay, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the through his website Kitces.com, dedicated to advancing knowledge in financial planning.
In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.