Taxes on Roth in retirement?

[frugalthirty]

How are Roth withdrawals taxed after 59.5?
If they are races as income, doesn't it make more sense to contribute in taxable account into ETFs? Then withdrawals in retirement are taxed at long term gain rate, which is lower than income tax rate.


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[frugalthirty]

Sorry, "taxed as regular income"


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[retirementguy1]

You do not pay any taxes on Roth withdrawals. It is completely tax free because your contributions are after-tax dollars.

 

[Andre1969]

Can a Roth withdrawal end up triggering more taxes in another way, though? For instance, is it still counted as part of your total income, so that while you may not pay taxes in it, specifically, it might still push some of your other income into a taxable bracket?

 

[pb4uski]

No, it is like withdrawing principal from a taxable account. No tax implications that I can think of.

 

[Rothman]

Roths are one of the biggest gifts that exist in the tax code, tax free growth! What could be better? No mandatory withdraws, and an excellent legacy as you can pass on this tax free growth benefit to your heirs. Leave money in a Roth to a great grandchild and it can continue to grow as they can take withdraws based on their life expectancy when inherited.
Now you should have both tax deferred trad IRA and Roth IRA in your plans as it gives you best options to optimize tax rate now and in retirement. The biggest mistake is people not taking advantage of back door Roth for a spouse or themselves, and invest the same after tax money in a taxable account, leaving the opportunity for tax free growth on the table.

Of course I maybe biased, Rothman wishes you well


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[Blue65]

Do you know if you can do a back door Roth for both husband and wife if both are working? Combined income about $300k.


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[Animorph]

Do you know if you can do a back door Roth for both husband and wife if both are working? Combined income about $300k.


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One or both working is fine.

 

[DatumPoint5]

Blue65,
The "Roth Rules" can be viewed at this link Roth IRA Limits: See If You Qualify Based on Income | RothIRA.com

It appears, at 300k, you may not qualify. "Married filing jointly" is capped at 181,000. It is gradually phased out up to 191,000. MAGI over 191,000 is ineligible for a Roth....

 

[kaneohe]

How are Roth withdrawals taxed after 59.5?
If they are races as income, doesn't it make more sense to contribute in taxable account into ETFs? Then withdrawals in retirement are taxed at long term gain rate, which is lower than income tax rate.


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From kawill at the fairmark.com site: You can see that in addition to
your age, the age of your first Roth IRA is important. Also the ordering rules: first withdrawals are considered your contributions, then your conversions (if any) and finally earnings...........so earnings are potentially taxable (as ordinary income), if you withdraw too much

************************************************************

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No ;Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

Note: The table is not applicable to timely distributions of excess contributions or return of regular contributions.

 

[gozer]

Blue65,
The "Roth Rules" can be viewed at this link Roth IRA Limits: See If You Qualify Based on Income | RothIRA.com

It appears, at 300k, you may not qualify. "Married filing jointly" is capped at 181,000. It is gradually phased out up to 191,000. MAGI over 191,000 is ineligible for a Roth....

Blue was talking about "backdoor Roth" not direct contributions to a Roth. Currently they could contribute to traditional non-deductible IRA and convert to Roths later. Roth conversion doesn't currently have an income limit. Once upon a time Roth conversion was limited to incomes below 100K, but that limit was removed in 2010.

 

[DatumPoint5]

Gozer,
I missed the "back door" part. My mistake. You are correct.

 

[harley]

There's a couple of proposals in the president's 2015 budget that might change the way Roths work. http://online.wsj.com/articles/should-i-leave-a-roth-to-my-heirs-1410120116

The first would require Roth owners to start taking distributions at age 70½. If that happens, "that asset pool might be pretty much wiped out by the time I get to leave anything to my heirs," says Jamie Hopkins, a professor in the retirement income program at the American College in Bryn Mawr, Pa.

The second would end the ability of nonspousal IRA beneficiaries to stretch distributions. Instead, inherited IRAs would have to be disbursed within five years of the owner's death. (Certain beneficiaries would be exempt.)

I realize the president's budget has the chance of a snowball in hell of passing. However, just the idea that they're already willing to screw around with the process is a worry. I've been diligently working towards converting my IRAs in order to avoid RMDs, and plan to leave any remaining balance to my DGD to accomplish the stretch concept. If they're willing to mess with these parts, what would be safe?

 

[The HalfBreed]

There may be different rules for Roth IRA vs Roth 401K. I'd look it up under IRS Rules.
I believe there are no RMD's under the ROTH IRA Model. Double check that to be sure.

 

[rbmrtn]

Backdoor roths can be tricky if you have existing IRAs. You have to aggregate all IRA accounts when calculating the conversion tax.

Roth IRA Conversion: The Drawback of a Backdoor Roth IRA | Bankrate.com

 

[Blue65]

I agree with the above, I have both a Rollover IRA and a SEP IRA, and exceed the income guidelines, so to me this just screams "NO". My accountant never suggested it, and he always told me to do a SEP IRA but now I understand his caution.


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[Rothman]

What is stated is true Blue55, that's why my back door Roth IRA is for my wife, she has no trad IRA money and therefore after tax money we would save and invest anyway in an after tax account is put to better use in a Roth IRA in her name. Beyond the tax free growth no complications on changing funds. My taxable account investment is more fixed since if you move within the year huge tax impact and even after a year you have capital gains to pay.


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