Roth IRAs

**Nordic** · 01-13-2010, 03:19 PM

"In the meantime, 2010 is a special year for converting traditional IRAs into Roths. When the Bush cuts were being constructed there was a need to find more government revenue, particularly at the end of the period covered by the law, i.e., 2010. IRA conversions fit the bill because, in the short run, they generate additional income tax

revenue. (In the long run they do not, since conversions reduce income taxes paid in the future.)"

http://articles.moneycentral.msn.com..._blg=1,1546091

I tried looking for a Roth specific thread to post this, but didn't see one immediately, so I posted it here. Hope it's useful.

**PessOptimist** · 01-15-2010, 03:25 AM

This may not be the right thread for this but I have a tax question.

Looking in to Roth's for another reason, I am led to believe that the earnings on a Roth will be tax exempt when withdrawn if you meet age and other requirements.

I have believed that with traditional IRAs and the TSP that I will have to pay income tax on the principal and all earnings upon withdrawal regardless of my age.

Is this correct?

**burrocrat** · 01-15-2010, 03:39 AM

Roth IRA = after tax money in, never taxed again. Earnings in Roth for minimum 5 years and withdrawn after age 59.5 not taxed. Also, if necessary can withdraw principal without penalty since taxes have already been paid on the money, but that defeats the tax benefit on earnings as that principal is no longer accruing gains. No loan paperwork but no make up provisions either i think.

Laws can change though, many a slip twixt the cup and the lip, especially with 20-30 years before you plan to use the money. if the US continues on its bankrupt path nothing would surprise me. on the other hand the money may be worthless by then anyway so it might not matter.

**PessOptimist** · 01-15-2010, 03:47 AM

Originally Posted by burrocrat

Roth IRA = after tax money in, never taxed again. Earnings in Roth for minimum 5 years and withdrawn after age 59.5 not taxed. Also, if necessary can withdraw principal without penalty since taxes have already been paid on the money, but that defeats the tax benefit on earnings as that principal is no longer accruing gains. No loan paperwork but no make up provisions either i think.

Laws can change though, many a slip twixt the cup and the lip, especially with 20-30 years before you plan to use the money. if the US continues on its bankrupt path nothing would surprise me. on the other hand the money may be worthless by then anyway so it might not matter.

Thanks burrocrat, knew that, what about tax deferred plans, such as TSP? Are the earnings subject to tax?

**Warrenlm** · 01-15-2010, 04:17 AM

Withdrawals from TSP other than loans and rollovers are taxed as ordinary income--both contributions and growth. Same for Deductible Traditional IRAs. For Nondeductible Traditional IRAs, only the tax deferred earnings are taxed as ordinary income when withdrawn. Penalties apply for early withdrawals for you youngsters.

**Show-me** · 01-15-2010, 11:46 AM

Originally Posted by PessOptimist

Thanks burrocrat, knew that, what about tax deferred plans, such as TSP? Are the earnings subject to tax?

Yes.

**Nordic** · 02-12-2010, 01:21 PM

"Should you rethink that switch to a Roth? At least you should understand the potential pitfalls, because a hasty move could wind up costing you a lot of dough."

http://articles.moneycentral.msn.com...nversions.aspx

**OMA** · 02-22-2010, 09:03 PM

Originally Posted by PessOptimist

This may not be the right thread for this but I have a tax question.

Looking in to Roth's for another reason, I am led to believe that the earnings on a Roth will be tax exempt when withdrawn if you meet age and other requirements.

I have believed that with traditional IRAs and the TSP that I will have to pay income tax on the principal and all earnings upon withdrawal regardless of my age.

Is this correct?

That's how I understand it.