Roth Reference Guide

The Roth IRA offers four main advantages over the Traditional IRA, 401(k) or 403(b).

They are:

  • The opportunity to increase your investment earnings tax-free.
  • A Roth IRA is effectively larger than a Traditional IRA because all the money is working for you, not the IRS.
  • There are generally no Required Minimum Distributions, so the tax benefits can be preserved longer.
  • You have the ability to withdraw contributions anytime prior to age 591⁄2 penalty free.

The eligibility to make Roth IRA contributions is subject to the following filing status and MAGI limits.

Single: 2017

  • Up to $120,000 = full amount
  • More than $120,000 but less than $135,000 = pro rata
  • $133,000 or more = not eligible

Married: 2017

  • Up to $189,000 = full amount
  • More than $189,000 but less than $199,000 = pro rata
  • $199,000 or more = not eligible

There are no MAGI limits on a Roth Conversion.

Taxation on Roth Conversions:

  • Conversions are taxable in the year of conversion.

Converting Inherited Assets:

  • Inherited Individual IRAs cannot be converted unless the beneficiary is a spouse.
  • Inherited employer plans can be converted if rolled directly from the plan to an inherited Roth IRA.

Distribution Order - Five Year Rules

  • Contributions to a Roth come out first and are always tax and penalty free

Rule 1:

  • Conversions come out second and must be held five years OR to 591⁄2 to avoid
    the 10% penalty. (NOTE: pretax first, after tax second. After tax not subject to rule.)

Rule 2:

  • Earnings
  • Must be held five years AND to age 591⁄2 to be tax free
  • Must be held to 591⁄2 to be penalty free
  • Five year clock starts with the first contribution to Roth IRA

Contact your Wealth Advisor for more details.

Securities offered through J.J.B. Hilliard, W.L. Lyons, LLC Member NYSE and SIPC. Hilliard Lyons does not offer tax or legal advice. Please consult your tax advisor or attorney before making any decision that may affect your tax or legal situation. © 2018 J.J.B. Hilliard, W.L. Lyons, LLC.

J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA & SIPC

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