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THE ROTH IRA
What Is a Roth IRA?
A Roth IRA is a type of tax-advantaged individual retirement account to which you can contribute after-tax dollars. The primary benefit of a Roth IRA is that your contributions and the earnings on those contributions can grow tax-free and be withdrawn tax-free after the age 59½ assuming the account has been open for at least five years. Roth IRAs are similar to traditional IRAs, with the biggest distinction being how the two are taxed. Roth IRAs are funded with after-tax dollars—this means that the contributions are not tax-deductible, but once you start withdrawing funds, the money is tax-free.

Understanding Roth IRAs
Similar to other qualified retirement plan accounts, the money invested within the Roth IRA grows tax-free. However, a Roth IRA is less restrictive than other accounts. The account holder can maintain the Roth IRA indefinitely; there are no required minimum distributions (RMDs) during their lifetime, as there are with 401(k)s and traditional IRAs

Conversely, traditional IRA deposits are generally made with pretax dollars; you usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during retirement.

A Roth IRA can be funded from a number of sources:
  • Regular contributions
  • Spousal IRA contributions
  • Transfers
  • Rollover contributions
  • Conversions

​The Internal Revenue Service (IRS) limits how much can be deposited annually in any type of IRA, adjusting the amounts periodically. The contribution limits are the same for traditional and Roth IRAs. These limits apply across all your IRAs, so even if you have multiple accounts you can't contribute more than the maximum.

Who’s Eligible for a Roth IRA?
Anyone who has earned income can contribute to a Roth IRA—as long as they meet certain requirements concerning filing status and modified adjusted gross income (MAGI). Those whose annual income is above a certain amount, which the IRS adjusts periodically, become ineligible to contribute.
​

Differences between a ROTH IRA and ROTH 401(k) or ROTH 403(B)
Roth IRAs do not require withdrawals until after the death of the owner. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024. (more Info)
How do ROTH IRA conversions work?
More Info
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Will taxes go up or down in the future?
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THE ROTH 5-YEAR RULE
ROTH CONTRIBUTIONS (THE FIVE YEAR RULE)
  • To satisfy this rule, you must have owned a ROTH IRA for 5 consecutive tax years.
  • Once you satisfy the rule for ONE ROTH IRA, you have satisfied it for all of your current and future ROTH IRA's forever.
  • If you have not met this rule, any earnings distributed will be treated as taxable income
    • Even if you are 59 1/2 or older
    • Even if you are a first-time homebuyer
    • Even for beneficiaries
  • The 5-Year rule does NOT determine whether you will pay a 10% penalty. See Qualified Distributions

​ROTH CONVERSIONS (THE FIVE YEAR RULE)​
  • The rule determines weather you will pay a 10% penalty on any distributions
  • The 5-year rule must be satisfied for EACH AND EVERY Conversion
  • Rule does not apply once you reach 59 1/2 years old
  • ROTH IRA conversion ladder strategy (For those who retire early), they might convert a years worth of expenses each year over a number of years and wait for the 5-year period to lapse so you can access the money without a penalty.

ROTH 401(k) TRANSFERS INTO ROTH IRA (THE FIVE YEAR RULE)
  • The 5-year holding period  of the ROTH 401(k) doesn't carry over to the Roth IRA, so unless an employee already has a Roth IRA, the 5-year holding period starts over for any measure of tax-free gain on the IRA side. You get NO credit for years you held the ROTH 401(k).
  • If the Roth 401(k) has met the 5-year holding period and a qualifying event occurs (usually age 59 1/2) then the Roth elective deferrals plus the gain on those deferrals come over to the Roth IRA as 100% as a tax-free basis. But any future growth on that basis has to meet a brand new 5 year holding period. It doesn’t get the benefit of the 5 years that the Roth 401k already satisfied. So a Roth IRA should be set up simultaneously while in the ROTH 401(k) so that both 5 year periods are running concurrently. 
  • Roth 401(k)s have higher contribution limits than a ROTH IRA.​​

What are Qualified Distributions?
​A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
  • It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
  • The payment or distribution is:
    • Made on or after the date you reach age 59½,
    • Made because you are disabled (defined earlier),
    • Made to a beneficiary or to your estate after your death, or
    • One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

Required Minimum Distributions (RMDs)
401(k) accounts are subject to the same required minimum distribution (RMD) rules that apply to traditional  IRAs accounts. Therefore, the account owner must start taking RMDs from their 401(k) for the year in which they reach the age for RMD distributions and continue for every year thereafter unless they are still employed.

Ordering Rules of Distributions
If you receive a distribution from your Roth IRA that isn't a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed under What if You Contribute Too Much? in chapter 2 of Pub. 590-A). (More Info)
Order the distributions as follows.
  • Regular contributions.
  • Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion and rollover contributions into account as follows.
    • Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first.
    • Nontaxable portion.
  • Earnings on contributions

RESOURCES
  • What you need to know about the Confusing ROTH IRA Five-Year Rule
IRS Publications:
  • Distributions from Individual Retirement Arrangements (IRAs) 590B
  • Ten Differences Between a ROTH IRA and a Designated ROTH Account


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136 Hillside Drive E
Burleson, TX 76028

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Main # 360-722-7889
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Fax #425-412-6865

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CLICK TO READ OUR FULL DISCLOSURE
The information contained herein: (1) is proprietary to Birdseye Financial Group and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Any information herein about providers, speakers, and services does not constitute a recommendation or endorsement. This material is not to be distributed without the express written consent of Birdseye Financial. Regarding your financial situation, you should consult with a financial professional before acting on specific actions or suggestions given. For legal or tax advice, you should contact your qualified attorney or CPA. Insurance and tax planning services are offered through Birdseye Financial. Investing involves risk, including the potential loss of principal. No market investment strategy can guarantee a profit or protect against loss during declining values. ​Fiduciary Investment Advisory Services are offered through Simplicity Asset Management, an SEC-Registered Investment Advisor. Registration does not denote any level of skill or qualification.

MEDICARE MANDATORY DISCLAIMER
“We may not offer every plan available in your area. ​Please get in touch with Medicare.gov, 1-800-MEDICARE, or your local State Health Insurance Program (SHIP) to get information on all your options.” All calls regarding Medicare may be recorded by phone or online and a SCOPE of appointment required by Medicare will be obtained 48 hours before any sales meeting to discuss plan details. (NOTE - The organizations and plans can vary by state and county, we can validate these numbers upon request.)

State Licenses
LICENSES: AZ #7101306, CA #4140429, FL #W825259, GA #3621424, ID #863617, KS #7101306, MA #2176921, NV#3879853, NC #7101306, OK #3001663224, OR #7101306, TX #2695866, WA #190780. Note that in California, our DBA is Birdseye Financial and Insurance Services. The current license status may increase or decrease without being updated on this site. ​If you have any questions, please don't hesitate to ask.

PRIVACY POLICY       OPT-IN PROCESS
  • Home
  • About
    • Who We Are >
      • Explore More
    • Corbin Lindsey, Advisor
    • Our Reviews
    • Get Started
    • Risk & Portfolio Assessment
    • Request Free Consultation
  • Strategies
    • Key Components
    • Sequence of Returns
    • Volatility Buffer >
      • Volatility Buffer Webinar
    • Tax Strategies >
      • Tax Free Income
      • RMD Calculator
      • IRA RMD RULES
      • ROTH IRA
      • ROTH Conversion
      • Tax Declassified Webinar
      • Qualified Charitable Donation
      • Business Tax Credit
    • Inflation Impact
    • Educational Videos >
      • Documentaries
      • Educational Webinars >
        • Taxes Declassified
        • Top 10 IRA Mistakes
        • Taxes in Retirement
        • 3 Economic Strategies
        • Five Key Areas of Retirement
    • Recommendations >
      • ROTH Conversions
      • Volatility Buffer
      • Tax-Free Income
      • Wealth Transfer
    • Premium Finance
  • Planning
    • Retirement Analysis >
      • RA Sample
    • Social Security >
      • Social Security Webinar
    • Pension Maximization
    • Risk Analysis and Investments
    • LifePro Asset Management >
      • Questionnaire
    • Estate Planning
    • Federal Benefits >
      • Federal Benefit Kit
    • WA Retirement Systems
    • Boeing Retirement >
      • Boeing Webinar
      • Boeing Download
      • Boeing Calendar
      • Boeing Retirement
    • Business Planning >
      • Tax Free Multiplier
      • Business Tax Credit >
        • Resources
      • Employee Retention Tax Credit
      • Research & Development Tax Credit
  • Insurance
    • Annuities >
      • Annuity Resources
      • Market Index Links
      • Annuity Report
      • Annuity Reviews
    • Medicare >
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      • Medicare Clients
      • Medicare Plan Compare
      • Medical Networks
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      • PEBB Benefits >
        • 2024 PEBB Retiree Guide
      • Medicare A&B
      • Medicare Rules
      • Medicare Meetings
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    • Long-Term Care
    • Life Insurance >
      • Multi-Generational
      • Premium Finance
      • Final Expense
    • Health Insurance
    • Dental Insurance
    • Vision Insurance
  • Tools
    • Financial News Blog
    • Market Simulations
    • Required Minimum Dist (RMD Calculator)
    • Interest Types
    • Calculators
    • Professional Referrals >
      • Dead Doctors Don't Lie
    • Bankrate Interest Rates
    • Rate of Return Calculations
    • Zillow Home Value
    • Credit Info
  • Contact
    • Free Consultation
    • Schedule Appointment
    • Online Meeting
    • Secure Upload
    • Retirement Analysis (initial)
    • Retirement Software Client Portal
    • New Application
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    • Beneficiary Form
    • Client Resources
    • Phone App
    • Rate our Service
    • Refer a Friend