Roth Ira Withdrawl Question.
04-05-2010, 04:58 PM
#1
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Majik/Other members,
I plan on taking out some money from my Roth IRA in order to do a few house projects. From my understanding, you are penalized 10% federally plus whatever income tax percentage your state currently has? Is this correct?
Thanks,
Sean
I plan on taking out some money from my Roth IRA in order to do a few house projects. From my understanding, you are penalized 10% federally plus whatever income tax percentage your state currently has? Is this correct?
Thanks,
Sean
04-05-2010, 07:32 PM
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that be correct
its the same way with my TSP (Thift Savings Plan) which is compareable to IRA or 401K for civilians
its the same way with my TSP (Thift Savings Plan) which is compareable to IRA or 401K for civilians
04-05-2010, 07:42 PM
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This is the best description I found to explain it. I think you have to pay the 10% fee regardless, but then you only pay income taxes on the percentage of EARNINGS in the account.
Thus... if you have contributed $7,500 and you've earned $2,500 in gains, your Roth IRA account has $10,000 in it. Therefore, 25% of your account is considered EARNINGS. Now, if you take out $1,000 then 25% of that will be considered taxable as earnings.
This website seems to explain it well also. http://www.fool.com/Money/AllAboutIR...boutiras07.htm
looking at the penalties, I don't see why you'd do this to for a "home improvement" project... taking out a 15% loan might save you money.
However... if you have to (can) take out student loans, and you can apply the loans towards your house, and then claim to be taking out your Roth IRA for educational purposes, it may avoid the fees.
...................
edit: you only pay taxes on the "earnings" because your contribution to the account has already been taxed (since it's a Roth). Otherwise, you'd be taxing the same money twice. That doesn't make sense, but give Washington a few years to discover another way to screw us over.
QUOTE
"When you take a nonqualified distribution from this account, you have
to report taxable income in proportion to the account's earnings when
you take a distribution. For example, if 80% of the money in the
account is from your contributions and another 20% is from earnings,
your distribution will be 20% taxable even if the amount you withdraw
is less than the amount of your contributions."
to report taxable income in proportion to the account's earnings when
you take a distribution. For example, if 80% of the money in the
account is from your contributions and another 20% is from earnings,
your distribution will be 20% taxable even if the amount you withdraw
is less than the amount of your contributions."
Thus... if you have contributed $7,500 and you've earned $2,500 in gains, your Roth IRA account has $10,000 in it. Therefore, 25% of your account is considered EARNINGS. Now, if you take out $1,000 then 25% of that will be considered taxable as earnings.
This website seems to explain it well also. http://www.fool.com/Money/AllAboutIR...boutiras07.htm
looking at the penalties, I don't see why you'd do this to for a "home improvement" project... taking out a 15% loan might save you money.
However... if you have to (can) take out student loans, and you can apply the loans towards your house, and then claim to be taking out your Roth IRA for educational purposes, it may avoid the fees.
...................
edit: you only pay taxes on the "earnings" because your contribution to the account has already been taxed (since it's a Roth). Otherwise, you'd be taxing the same money twice. That doesn't make sense, but give Washington a few years to discover another way to screw us over.