Roth, Roth Ira And Roth IRA discussed on KLBJ Programming


Questions. You can join me at 512. 83605 90. When you look at the Roth IRA distribution rules, they're very, very favorable for taxpayers. Um all Of an individual's Roth irate When you bring As long as certain criteria has been met, of course. When you put funds in Something happened. There's a little clock behind the scenes that happens. This is what we call the five year Window for Roth. Now there's a couple five year clocks. That you need to be. Of aware of And when you put money into these things The dollars you put in first Are considered to leave the account in a specific order. When it comes to distributions of the earnings on your off the grog the growth on your own. Every single one of you that has a Roth IRA A. You really want to understand? That there's a five year rule. Around qualified distributions. And by following this rule. You the saver. Can cash in on tax free. Roth IRA Aries. And because this is the goal. Of Roth IRA. It's incredibly important. You understand the nuances of the five year rule I'm gonna discuss today. I cannot emphasize this enough. This is very often over What So if you want to have tax free distributions of Roth IRA earnings, two conditions You got to be met. Number one. Is when you're over 59 a half Or you're disabled. Or maybe your first time home buyer. You can access these dollars. Many cases tax free as long As this, Roth has satisfied a five year holding period. Now, here's where things get kind of tricky. The five year holding period. May actually Be less than five years. You could actually Have the money in less than five years. Still hit the bell on this five year rule. Let me tell you why. It's because it starts on January 1st. Of the year for which that Roth Ira Hey, Made the contribution or the conversion. That's the first Contribution. Conversion. Okay, so the five year holding period this is the best news it never restarts. It really is a five year window. That you never have to think about again. Think about it like for it's a five year forever clock. When you put in a new contributions, or you have new conversions. It has no effect. On this five year clock. This is even true. If if these contributions are conversions are made Two other Roth I race. We have a lot of successful clients that Have multiple Roth I raise. There's a couple reasons people do that. We won't really get into that today, but I think it's really helpful for me to maybe just paint the picture. Give you a couple case Examples. So what's second individual? That on March 17th Of 2017. This individual age 65. Let's say they contributed $1000 to the Roth and they contributed as a prior your contribution to 2016. So many of you know, you could put money in your ire A or your Roth irate. For the past year is long as you do it. By April 15th. In most cases, the tax filing date. I know it's been extended here because of code. But not even because go Excuse me, The winner vortex. These. These are kind of coming hand in hand together. So let's say the individual contributed in 2017. What march? Remember? But it was counted as a Contribution for 2016. Let's assume this individual. This was their first contribution to Roth Ira, eh? Let's say now year goes by and the individual converted their traditional IRA. To another Roth IRA could even be with a different custodian, different brokerage. Let's say that converted 500 grand So then we fast forward. Now. Here we are. February 2021. March, 2021. When That individual converted the Roth IRA, eh? It was worth a half million bucks. Remember? Now this person takes a total distribution. From the account. Is that distribution qualified. They put the first money in on March, 17th. 2017 And now they're taking it out in February March of 2021. You're going Well, that's that's not five years. Not so quick. That initial contribution Was 2016 contribution. So even though they put it in in 2017 before they filed taxes, it counted towards the 2016. This person is Already over age 59 59 half Remember, I said there's 65 years old. And the five year holding period. Has been met because, remember, as I started out today. The first day of the year for which this investor made that first IRA contribution. Starts the clock. So that is the first Of the five year Now, one thing that people Get confused with as well. I thought I could take money out of my Roth Ira. Hey. Any time I wanted to even before 59 half, check this out. That is true. However. Only if it's your original contribution. So if you put $1000 in your Roth Next year. It grew to $2000. And you wanted to access money that Roth, you can take Your initial $1000 that you just can't touch the earnings. Until you're 59 half You can't touch the earnings until these five year clocks Have been

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