Roth IRA
Qualified Distribution tests (conti.)
(B) - In addition to the five-year test, the distribution must satisfy ONE of the following requirements: (1) - Made on or after the date on which the owner attains the age 59-1/2, or (2) - Made to a beneficiary or estate of the owner on or after the date of owner's death, or (3) - Is attributable to the owner being disabled, or (4) - For a first-time home purchase (lifetime cap of $10,000 for first-time home buyers includes taxpayer, spouse, child, or grandchild who has not owned a house for at le
Minimum Distribution Requirements
-Roth IRAs do not have minimum distribution rules
Contribution rules:
-up to $5500 per year** -$1,000 catch-up (age 50 and up)** -deadline to contribute by due date of tax return (April 15th) -contribution Modified AGI* Phase-out limits: (A) - Single - $118,000 - $133,000 (B) - Married filing jointly - $186,000 - $196,000 (C) - Married filing separately - $0 - $10,000 *Note: Modified AGI does not include income that is attributable to the conversion of a Traditional IRA to a Roth IRA. **max. annual contribution between IRA and Roth IRA. Up to earned income. -6% penalty on exess contribution
Order of Nonqualified Distributions
(A) - From regular contribution; (B) - From conversion contributions, on a first-in-first out basis; and then (C) - From earnings. -Exhausting each category before moving to the following category. -(A) & (B) no income tax, maybe penalty -(C) subject to tax and penalty if non-qualified distribution
Roth conversions from Traditional IRA
-There are NO MAGI limitations on a traditional IRA being converted to a Roth IRA. -Rollover rules: (A) - the distributed amount from a Traditional IRA must be deposited into Roth IRA within 60 days after the distribution; (B) - An amount in a Traditional IRA is transferred in a trustee-to-trustee transfer from the trustee of the traditional IRA to the trustee of the Roth IRA; or (C) - An amount in a Traditional IRA is transferred to a Roth IRA maintained by the same trustee.
Roth IRA characteristic.
-contribute with after-tax dollars (non-deductible) to the extent of earned income(includes Alimony received) -withdrawals are tax-free
Roth IRA to Roth IRA Roll over
A Roth IRA can be rolled over to another Roth IRA tax-free. The transaction must be completed within 60 days, and only one rollover is permitted within a 12-month period (unless a trustee-to-trustee transfer).
A distribution amount included in gross income (taxable)
is the amount by which the total of all distributions (qualified or not) taken through the years exceeds the amount of all contributions and conversions to all of the individual's Roth IRA
Roth Conversions
-Any converted amount is treated as a distribution from a Traditional IRA and is included in gross income for the year in which the distribution occurs. -Any amount converted that is a return of basis is not included income. -The 10% early withdrawal penalty under IRC 72(t) does not apply to the taxable conversion amount.
10% early withdrawal penalty
-generally apply to any portion of a distribution from a Roth IRA that is includible in gross income (such as earnings) -applies to nonqualified distributions of conversion contributions (even if it is not includible in gross income) when distributed within the five-taxable-year period. -regular contribution portion of IRA is not subject to penalty -The year of coversion is only a factor when the distribution is a nonqualified distribution. -the penalties can be avoided if the distributions falls within one of the exceptions for IRAs (p.532)
Traditional IRA vs. Roth IRA
1)Unlike Traditional IRAs, Roth IRA contributions eligibility is not restricted by active participation in an employer's retirement plan. 2)Unlike Traditional IRAs, Roth IRA contributions can be made after age 70-1/2. 3)Roth IRAs are not subject to minimum distribution rules until DEATH of the Roth IRA owner.
Distribution rule for beneficiary
If the owner of the Roth IRA dies, the beneficiary will have to wait until the end of the original five-taxable-year period for the distribution to be qualified distribution.
Roth IRA Distribution Rules:
-A distribution from a Roth IRA is excluded in the owner's gross income if it is a qualified distribution or to the extent that it is a return of the owner's contributions to the Roth IRA. -Order of distribution: (A) - From regular contribution; (B) - From conversion contributions, on a first-in-first out basis; and then (C) - From earnings.
Qualified Distribution tests:
A distribution from a Roth IRA that satisfies BOTH of the following tests: (A) - The distribution must be made after a five-taxable-year period, which begins January 1st of the taxable year for which the first regular contribution is made to any Roth IRA, or if earlier, January 1st of the taxable year in which the first conversion contribution is made to any Roth IRA (see below)
Qualified distribution
a distribution from a Roth IRA is not includible in the owner's gross income and is not subject to the 10% early with drawal penalty.
