On Thu, 11 Aug 2022 11:08:40 EDT, Roger Fitzsimmons wrote:
I am helping my newly self-employed nephew set up retirement plans.
Am I correct that:
a) You can withdraw contributions, but not earnings, from a Roth
IRA free of tax and penalty as long as the account has been open
for 5 years;
b) You can only withdraw funds from a Roth 401(k) penalty-free
if you are age 59 1/2 or perhaps meet some other requirements.
It's a bit more complicated that the statements you made, although
you mentioned some of the criteria. In particular, earnings _are_
free from tax and penalty if the distribution meets the tests for a
qualified distribution, such as withdrawal by someone 59½ or older
after the Roth has been open for five tax years.
There's a nice flowchart on page 34 of Publication 590-B, here:
https://www.irs.gov/pub/irs-pdf/p590b.pdf
Notice in the first box, "five years _from_the_beginning_ of the year _for_which_ you first set up and contributed" your Roth. If you open
a Roth before your due date or extended due date in 2022 for tax year
2021, then (counting) 2021, 2022, 2023, 2024, 2025 is five years, so distributions on or after January 1, 2026 are tax free if the
recipient is 59½ or older, buying a first home, or disabled. That can
be less than 3½ years by the calendar.
The prose explaining the rules starts on page 31.
--
Stan Brown, Tehachapi, California, USA
https://BrownMath.com/
Shikata ga nai...
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