Please help me with basic ROTH ira question

[Petunia 100]

Read the part about Qualified Distributions. If you are under 59 1/2 and you contribute or rollover money, it must remain in the ROTH for 5 years, before it will be considered Qualified and therefore avoid the 10% penalty. There is also an exception for withdrawing by the due date of that years contributions. So you can access any contributions penalty free if they have aged for five years or more, or if they are the current years contribution withdrawn by the due date.

Nope, read the first line again:

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).

Notice there are two different kinds of distributions which you do not include in gross income.

I am pointing this out because the OP is receiving conflicting information which s/he finds confusing.

[autoxer]

Nope, read the first line again:

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).

Notice there are two different kinds of distributions which you do not include in gross income.

I am pointing this out because the OP is receiving conflicting information which s/he finds confusing.

Now I'm confused. In the IRS publication, why does it say that distributions aren't qualified unless they are made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA?

[sblatner]

Goldy1,

Did you put the money into the Roth IRAs each year or did you roll it from an old 401k or IRA? If you put the money in $5k per year from cash, then you can withdraw it at anytime. You only get into penalties and confusing language if you have rolled the money over from an existing retirement account.

I have a Roth IRA that I have put $15k into over three years. I can withdraw my original $15k at anytime.

It isn't a great idea as you can't put the $15k back in as you are limited by yearly contribution amounts but if it is your last resort, you can withdraw it.

http://money.cnn.com/retirement/guide/IRA_Roth.moneymag/index5.htm

[jIM_Ohio]

I am set to close on a house july 29.

I am supposed to close on my current home same day

I got word my deal with buyers on my home might fall through. (they won't get loan to buy my house)

We wanted to put the entire amount of equity from current home on new home.

We won't have that money if deal falls thru.

we still want to buy new home and sell current one after we move. (my current home is paid off so no double mortgage but it will still be hard but doable temporarily)

We are looking into taking money out of retirement. roth or 401K for down payment.

we don't have enough cash for down payment.

Two places told me we have to pay 10% penalty on taking my after tax money out of roth before 59 1/3. we are much younger.

I thought roth ira money was able to be taken out whenever I want minus the interest it made penalty free!!!
That's why so much of my money is tied up there!!! I thought I could get it if needed. paying 10% penalty is insane!

You are both right

10% penalty is on any gains
your contributions you can withdraw at any time without penalty

[Petunia 100]

Now I'm confused. In the IRS publication, why does it say that distributions aren't qualified unless they are made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA?

A qualified distribution is subject to the 5 year rule.

To be free from tax and penalty, a distribution must be either:

1. A qualified distribution,

OR

2. A distribution that is a return of your regular contribution.


It doesn't have to be both. It has to be one or the other.

[Goldy1]

Me and husband have roths with fidelity and both also have them with some other company(capital something, whatever ING changed their name too)so 4 roths total.
We have a total of about 65 K in them between the 4.

I called fidelity. By the way, they are great. Very knowlegable and helpful.

I CAN withdrawl my contributions without any 10% penalty or having to claim it on income tax return as income.

I just can't withdrawl the earning without a penalty.
CPA at my husband's work as well as another finanicial adviser told us otherwise yesterday. basically we were told wrong information. that's why I came on here asking.

We probably have 8 K only in actual cash in the bank and that's before bills are paid so I was freaking out a lot over this.

We put money in roth thinking "OH we'll have EF in there and can just get it if needed"
We had more cash in bank but has expenses this year.

I was like "Oh my if I can't get cash for a job loss or anything I am in dire straights. What if I want a family vacation one day etc etc"

[Petunia 100]

Have you looked into the HELOC?

[disneysteve]

I CAN withdrawl my contributions without any 10% penalty or having to claim it on income tax return as income.

I just can't withdrawl the earning without a penalty.
CPA at my husband's work as well as another finanicial adviser told us otherwise yesterday.

Pretty disturbing, though not the least bit surprising, that two financial professionals got this wrong. It is very basic stuff. The fact that you can market yourself as a "financial adviser" and not have a clue how a Roth IRA works just highlights why so many of us recommend managing your own finances without "professional" help.

No offense to the well-qualified and knowledgeable pros out there, but there are far too many who simply don't know what the heck they're doing.

[jIM_Ohio]

Pretty disturbing, though not the least bit surprising, that two financial professionals got this wrong. It is very basic stuff. The fact that you can market yourself as a "financial adviser" and not have a clue how a Roth IRA works just highlights why so many of us recommend managing your own finances without "professional" help.

No offense to the well-qualified and knowledgeable pros out there, but there are far too many who simply don't know what the heck they're doing.

There is also a difference between getting advice from a CPA at a water cooler or a financial advisor at a wedding reception and sitting down with them for a consultation. I have to say things in passing which I know to not be 100% true/factually accurate as small talk all the time.

If someone sits down, we go over all the details.

[Goldy1]

The language is confusing even to the pros, but I think we have it straight now.
the money was never rolled over from a 401K etc. it was straight after tax money I took from the bank and put right into a roth.