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Simple Roth 401K Question
Posted on 7/11/14 at 10:21 am
Posted on 7/11/14 at 10:21 am
I understand that contributions to a Roth 401k are taxed before the money is contributed into the account. When making withdrawals after retirement, how are the earnings taxed?
Posted on 7/11/14 at 10:32 am to LSUTOM07
LINK
ETA: There is a penalty and applicable tax if earnings (not contributions) are withdrawn early.
LINK
quote:
Earnings on investments within a Roth IRA are neither subject to income tax nor are they included in the IRA owner's income. Instead, they accumulate on a tax-deferred basis and are tax free when withdrawn from the Roth if the distribution is qualified.
ETA: There is a penalty and applicable tax if earnings (not contributions) are withdrawn early.
LINK
quote:
Tax Treatment Of Roth IRA Distributions
By Denise Appleby A A A
The Taxpayer Relief Act of 1997 created the Roth IRA, which was made effective for tax years beginning 1998. Prior to 1998, individuals who wanted to fund an IRA could make either a deductible or nondeductible contribution to a Traditional IRA, but distributions from Traditional IRAs are generally treated as ordinary income and may be subject to income tax as well as an additional early-distribution penalty if the withdrawal occurs while the IRA owner is under the age of 59.5. The Roth IRA, on the other hand, allows qualified distributions to be free from tax and penalties. Here we review the tax treatment of Roth IRA distributions. (For background reading, see Are all my Roth IRA distributions tax free?)
Tutorial: Roth IRAs
Defining Qualified Distribution
Distributions from a Roth IRA that are not qualified may be subject to income tax and an additional 10% early-distribution penalty. A qualified distribution meets both of the following two categories of requirements:
1. It occurs at least five years after the Roth IRA owner established and funded his or her first Roth IRA*.
2. It is distributed under one of the following circumstances:
The Roth IRA holder is at least age 59.5 when the distribution occurs.
The Roth IRA holder becomes disabled before the distribution.
The beneficiary of the Roth IRA holder receives the assets after his or her death.
The distributed assets will be used toward the purchase or rebuilding of a first home for the Roth IRA holder or a qualified family member. This is limited to $10,000 per lifetime. Qualified family members include the following:
the Roth IRA holder
the Roth IRA holder's spouse
the children of the Roth IRA holder and/or his or her spouse
the grandchild of the Roth IRA holder and/or his or her spouse
the parent or other ancestor of the Roth IRA holder and/or his or her spouse\
This post was edited on 7/11/14 at 10:36 am
Posted on 7/11/14 at 10:51 am to dcrews
What you have posted is about a Roth IRA. Are these the same exact rules for Roth 401K?
Posted on 7/11/14 at 11:02 am to LSUTOM07
As far as your question of taxes on distributions, yes.
Posted on 7/11/14 at 11:08 am to LSUTOM07
quote:
What you have posted is about a Roth IRA. Are these the same exact rules for Roth 401K?
Ah shite, I skimmed the thread title. My bad
LINK
quote:
However, distributions from Roth 401(k) accounts will include a prorated amount of basis and earnings. As such, non-qualified distributions will be taxed, but only on the amounts that are attributed to earnings. The determination of whether a distribution from a Roth 401(k) is qualified, and the amount of basis included in such distributions, must be made by the plan administrator. This is unlike the Roth IRA, where the account owner is responsible for keeping track of the basis and determining whether distributions are qualified.
Posted on 7/11/14 at 11:59 am to LSUTOM07
The main difference is that you have to take rm.'s from a roth 401, unless you roll it into a roth IRA
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