How To Withdraw Retirement Funds: Roth IRA

Updated : Sep 03, 2019 in Articles

How To Withdraw Retirement Funds: Roth IRA


I’ve got a riddle for you. Who is 5 years old in 59 1/2 at the same time? Your tax-free Roth IRA withdrawal of course! Hey there and welcome back to the Happiness IRA where we talk about how money impacts your life. Today we’re going to be talking about Roth IRA withdrawals: how they work and how that can be incorporated into your retirement income plan. But before we get into that, have you subscribed to this channel? This one. The one that we meet weekly and talk about all things retirement to all things money. Subscribe! Join our clan. If you have seen any of my other videos you will find that I am very partial to Roth IRAs. I think they’re awesome for retirement simply because they have some tax perks that are worth considering as part of your retirement income plan. Tax-free withdrawals in retirement (big asterisk beside that my compliance Department will want you to know… and I’ll give you all of those details.) So people want to know when can I take money from my Roth IRA. The optimal time is when you’re 59 1/2 and have had the Roth IRA opened since you were 54 1/2 and that’s because a Roth IRA should be opened for 5 years in order to have all of the tax perks working in your best interest. So what happens if you haven’t achieved those milestones? If you’re younger than 59 1/2 or if you haven’t had that Roth IRA open for more than 5 years… well let’s say you put in ten thousand dollars and it’s grown to fifteen thousand dollars (just for easy math for all parties involved.) When you take out that ten thousand dollars that is considered a return of capital, and so there is no taxes for that distribution. However if you have not achieved 59 1/2 and having that account open for more than 5 years, then the growth (that five thousand dollars of growth that we’re talking about) that would be taxable as ordinary income. And you’d have penalties on that if you are under age fifty nine and a half. So just make sure if you are cashing out a Roth IRA before those milestones that you know what the tax ramifications are and do the proper withholdings as needed. So how do you cash out? Sometimes it’s just a phone call to the advisor that has to get the job accomplished and sometimes you have to sign a form. So be prepared for at least three to five business days to get that check. Ain’t nobody happy when we wait too long to get money from our financial advisors. And you’re anxious about the distribution, and the advisor is anxious about the distribution. So what’s awesome about Roth IRAs in retirement? Let me just step on my soapbox and tell you. When you take out money it’s money that’s not counted towards your taxes. Not counted towards ordinary income. It’s not taxable at all. And so if you think about a given year where maybe you have a Social Security check coming in, maybe you have a pension, or you have to take a distribution from your 401k or IRA – and that’s kind of taxable income but you need just a little bit more… well that Roth IRA can be tapped into and it doesn’t create extra taxes for you in that given year. So think about it if you’re really staying under the radar of being taxed for Social Security (your Social Security being added back into your taxes) or your Medicare, you don’t give that extra surcharge. That Roth IRA distribution is the one that can keep you under that threshold if you’re getting pretty close to it. A Roth IRA is an awesome tool. I always suggest people consider that as part of their savings during their working years because it does create some options for you in retirement. Alright friends that’s all I have for today, thank you so much for tuning in. I appreciate it as always! Has anybody been talking to you about your retirement income plan? If not I would love to have that conversation. So at the end of this video you will see a screen that has my website www.pleasantwealth.com. And on that website you can click a button to set a meeting. When we have a meeting we’re really just looking at the basics of your financial situation and figuring out if you are a good fit for me if I am a good fit for you and if we can start working together to help you achieve your retirement goals. So with all of that good Roth IRA information I will leave you, and you take care!

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