Comments on: Retirement Savings: 401k Matched, Roth IRA Maxed, Now What?

By: Roth IRA Rules For Withdrawing Contributions | Frugal Dad

Roth IRA Rules For Withdrawing Contributions | Frugal Dad — Fri, 12 Mar 2010 18:54:26 +0000

[...] withdraw your contributions without penalty. The rules here are different from other tax-deferred retirement savings plans because the money you invest in a Roth has already been taxed. However, the earnings in your [...]

By: My Journey

My Journey — Fri, 15 May 2009 20:52:57 +0000

T.Rowe Price has one of those set ups where you can pick almost any of their funds with no min as long as you do $50/month. I am positive of this because I set up one for my wife and my brother.

By: almost there

almost there — Thu, 14 May 2009 15:22:40 +0000

OOPS, FD, not JD. My bad.

By: ABCs of Investing

ABCs of Investing — Thu, 14 May 2009 10:34:33 +0000

Thanks a lot for the link.

By: almost there

almost there — Thu, 14 May 2009 02:00:01 +0000

JD, the IRS keeps changing the Roth rules. I converted in 98 and had 4 years to pay the taxes due. It seems that the latest for last year is that one had 2008 ande 2009 to pay off taxes due, but there must be new rules this year. Gotta check with the irs website.

By: Michele

Michele — Wed, 13 May 2009 22:33:29 +0000

If you have maxed out on your 401(k) and your IRA and decide to put more toward retirement in a taxable account then you should put the lower risk investments portion there. There would be fewer tax consequences that way since the high return/high turnover investments are sheltered in the 401(k) and IRA. For example, if you aim to keep 80% of your retirement in stocks and 20% in Govt. bonds. And you put $15,000 in your 401(k) and $5000 in your IRA and want to invest $5000 more then all of your 401(k) and IRA should be stock while the $5,000 you invest on your own should be in the Gov’t bonds.

By: Craig

Craig — Wed, 13 May 2009 19:38:48 +0000

@Frugal Dad @Caleb I actually just spoke with Vanguard today about opening up a Roth IRA because I am young and don’t have much knowledge but would like to get stared. I was actually told you can get started at $1,000 or $2000 but there is only one mutual fund option. When you hit the $3000 mark your options open up.

By: Frugal Dad

Frugal Dad — Wed, 13 May 2009 18:10:51 +0000

@Jon: Disclaimer: consult an expert before making any moves where you might create a taxable event.

My understanding is that Roth IRA contributions may be withdrawn at any time; that’s only your contributions. Earnings may be withdrawn after five years, but before 59 1/2, without penalty if you withdraw for one of a small number of exceptions (the purchase of your first home, etc.). After 59 1/2 you may withdraw both contributions and earnings tax free.

Converting a traditional (deductible) IRA to a Roth IRA does have tax consequences, and muddies the water a bit. Typically, taxes are due in the year that you convert the funds because up to that point the money has not yet been taxed. Once taxes have been paid I would think the Roth IRA withdrawal policy would kick in as if it were a new Roth.

Can anyone out there confirm this for us?

By: Frugal Dad

Frugal Dad — Wed, 13 May 2009 18:02:16 +0000

@Caleb: You make a great point. Vanguard and Fidelity do have a high minimum contribution requirement (I think it’s around $3k for Vanguard, per mutual fund selected). I would look at an online savings account or similar to build up enough to make this minimum contribution.

Some brokerages will waive the minimum contribution if you agree to an automatic contribution plan (i.e. $50/month deducted from your checking account), but I don’t believe these two firms offer the waiver.

By: Jon

Jon — Wed, 13 May 2009 17:53:44 +0000

So, I am new to investing, and plan on taking advantage of my company matching 401K, but I’m really interested in your statement about Roth IRA’s contribution withdrawals not incurring a penalty. Is that at ANY time, or only after 5 years?

In addition, say I put $5k/yr into a Roth IRA, and I wait the 5-yr minimum, leaving me with 25k(investment) earnings. Are both the investment and earnings available for penalty-free withdrawal after 5 years?

Secondly, in each scenario that I have read the example begins with someone rolling a traditional IRA into a Roth IRA. Does this ‘conversion’ play a role in whether the contributions can be withdrawn? Or can you do the same thing if you begin by initially investing directly into the Roth?

I read on another site(http://www.fool.com/Money/AllAboutIRAs/allaboutiras07.htm): “If you wait until after the five-tax-year period to withdraw money from a Roth IRA, the 10% penalty won’t be imposed, even if you aren’t yet 59 1/2 and don’t meet any other exception to the penalty.”

This is a very confusing topic, so I like reading these articles.

-Jon