Rules for Roth WD

[Rianne]

DH seems to think once you WD from Roth, you have to continue WD over a period of time. We are over 59 1/2, had our Roth's well over 5 years. Contributed as usual every year. I want to WD from Roth before our other portfolio funds for the tax advantage. That would get us 4-5 years living expenses tax free, including SS and pension.

Question: Are you forced to WD from Roth once you've WD a portion of it once?

 

[pb4uski]

No, you can withdraw as much or as little as you want. Since you are over 59 1/2 and have had the account for over 5 years then all withdrawals are tax free and penalty free.

However, generally speaking, Roths should be the last account that you withdraw from. What other portfolio funds are you saving from withdrawal and why?

 

[bada bing]

+1

The typical situation for an early retiree is for it to be advantageous to do Roth conversions before RMD's and SS start. Not the other direction, by spending from Roth. Have you modeled your anticipated taxes out into your 70's to see what the eventual cost will be for some tax saving now ? Most situations are benefited by paying some tax early to moderate the eventual "tax torpedo" that many have waiting at RMD age.

 

[Sunset]

OP - Have you run the numbers in some tax software to be sure.

Since you are in IL , withdrawals from IRA/401K are not taxable in the State. So only Fed taxes should be a concern.

What will your taxes be at age 70 when you have to take RMD's ? Depending upon your IRA/401K balance and current income, you could possibly now start taking some from IRA and pay a low rate of tax, instead of waiting and paying a high rate of tax. ?

 

[Gotadimple]

To answer the OP question.

You can withdraw once from a Roth and are not compelled to withdraw annually.

If you have a traditional IRA, once you reach age 70.5 years, you are required to take a minimum distribution annually. So take as frequently (or not) as you like from your Roth. Plan on taking annual distributions from your Traditional once you turn age 70 - or there are tax penalties.
- Rita

 

[Dtail]

Agree with the posters. The only way I could see withdrawing from Roth before 70 yo is to supplement your income needs while managing your MAGI for ACA purposes, if you don't have supplemental cash.

 

[gauss]

Note the rules for Roth IRA and Roth 401k withdrawals are a bit different.

OP, could you please confirm that the Roth you are talking about withdrawing from is a Roth IRA and not a Roth 401k?

One concrete point of difference is that once you reach age 70 1/2, you are indeed required to take RMDs from Roth 401ks.

-gauss

 

[Rianne]

Agree with the posters. The only way I could see withdrawing from Roth before 70 yo is to supplement your income needs while managing your MAGI for ACA purposes, if you don't have supplemental cash.

Yes, the MAGI for ACA (if it's still there) is a concern. We are 61. If our cash doesn't last until 65, I think, the Roth is the way to go. We have outside I bonds paying 4% and I don't want to give that up. Just today, we got rid of some bond funds and bought 3.5% CD's within VG. Both are not Roth 401K.

 

[Sunset]

Yes, the MAGI for ACA (if it's still there) is a concern. We are 61. If our cash doesn't last until 65, I think, the Roth is the way to go. We have outside I bonds paying 4% and I don't want to give that up. Just today, we got rid of some bond funds and bought 3.5% CD's within VG. Both are not Roth 401K.

Ok, that totally explains the situation.
Note, that using the I bonds (in a few years perhaps) will lower your income the next year. Meaning an IRA withdrawal could be done.

 

[CRLLS]

Note the rules for Roth IRA and Roth 401k withdrawals are a bit different.

OP, could you please confirm that the Roth you are talking about withdrawing from is a Roth IRA and not a Roth 401k?

One concrete point of difference is that once you reach age 70 1/2, you are indeed required to take RMDs from Roth 401ks.

-gauss

Correct me if I'm wrong, Once you are no longer working most 401K Roths can be rolled over into a Roth IRA and 0 cost, thus eliminating the RMDs.

 

[CRLLS]

Yes, the MAGI for ACA (if it's still there) is a concern. We are 61. If our cash doesn't last until 65, I think, the Roth is the way to go. We have outside I bonds paying 4% and I don't want to give that up. Just today, we got rid of some bond funds and bought 3.5% CD's within VG. Both are not Roth 401K.

You could take out just enough $ from a pretax IRA or 401K to stay under the ACA limits and supplement that with some from the cash or Roth.

 

[donheff]

I agree that for most people building up the Roth in these years is the better strategy, But for some the OP's proposal makes sense. DW and I were in that position for the last few years but didn't have the Roth to turn to. We maxed out the lowest tax brackets because of pension income and could have avoided CGs in taxable withdrawals if we could have turned to Roth withdrawals instead. When DW turns 70 RMDs will be quite a bit larger than we will need for expenses so there would be no reason to tap Roths late, The only value of the Roths would be to the heirs. I would rather cut taxes in our 60s saving a little bit early on when the opportunity existed.

 

[Rianne]

My Roth is down -8.6% at this point in time. No benefit to loss in a Roth. 50% stock funds and 50% international stocks. Our other 401K funds have considerable CG since we stopped investing in stock funds when Dow at 17,000. If things get worse, what's the point of Roth? Can't market time a Roth, has to be within specific dates so I picked what seemed good at the time.

 

[pb4uski]

.... Can't market time a Roth, has to be within specific dates so I picked what seemed good at the time.

Of course you can market time a Roth... you can just go between equities and cash/fixed income within the Roth.

So let's say have a Roth invested in equities and I am convinced that equities will go down... I sell equities in the Roth and hold cash/fixed income.... a year later I am convinced that equities will rise so I buy equities in the Roth.

BTW, I'm not recommending market timing at all... just pointing out that it can be done in a Roth.

 

[Rianne]

Of course you can market time a Roth... you can just go between equities and cash/fixed income within the Roth.

So let's say have a Roth invested in equities and I am convinced that equities will go down... I sell equities in the Roth and hold cash/fixed income.... a year later I am convinced that equities will rise so I buy equities in the Roth.

BTW, I'm not recommending market timing at all... just pointing out that it can be done in a Roth.

I hear you, these are trying times. If I sell now, I've lost 8% of my original contribution. If I'd gone into certain bond funds, lost also. I can wait this out and chance losing more or getting it back. I have a few years. Your conviction that equities will rise within the time frame I need them is positive thinking. I appreciate that.

 

[pb4uski]

... Your conviction that equities will rise within the time frame I need them is positive thinking. I appreciate that.

The "one year later" was an example, not an assertion.

 

[Sunset]

My Roth is down -8.6% at this point in time. No benefit to loss in a Roth. 50% stock funds and 50% international stocks. Our other 401K funds have considerable CG since we stopped investing in stock funds when Dow at 17,000. If things get worse, what's the point of Roth? Can't market time a Roth, has to be within specific dates so I picked what seemed good at the time.

Surprising since you had it over 5 years ?
Or you mean it's down from the highest level it was at, but still is much higher than the amount of money you put into it, so you have not lost money.

 

[Rianne]

Surprising since you had it over 5 years ?
Or you mean it's down from the highest level it was at, but still is much higher than the amount of money you put into it, so you have not lost money.

I'm going by VG %. We've been with them since late 90's. So, I've added the max every year (OMG) I don't even know what year we started them. I think 1997, when they were offered. The overall gains are down 8.6%, but added and not WD. Overall since inception +4.6%, 1 year -8.6%