Roth-IRAs demand equal time! (Keeping it all in the family Part III)

Since we recently went through the details of the many ways an IRA can be paid out to one or more beneficiaries, our clients with Roth-IRAs want equal time on the two most often asked questions we get on the subject of Roth accounts.

The two questions are:

• What are the requirements to withdraw money (tax-free) from my Roth?
• How can I tell if a Roth is a good choice for me?

This chart (clicking the chart will give you a larger, more-readable version) gives you the basis for what’s called a “qualified distribution.” With a qualified distribution, no tax is paid on the earnings from the Roth-Ira. As noted on the chart, you must meet both tests of being over 59 1/2 and having held the account for 5 years. A few exceptions to this rule (disability, a first time home purchase, etc.) exist, as well as special rules that apply when a beneficiary is withdrawing funds.

Question #2 doesn’t really have a general answer, but can depend on a number of factors such as your tax rate now vs. when you retire; how quickly you’ll need to make withdraws at retirement; what type of beneficiaries you have, to name just a few.

I’d be very wary of anyone who has a “one-size-fits-all” spreadsheet that can give you the answer on an IRA vs. a Roth decision. A wise decision has to based upon the advice of someone who knows your situation and your financial goals.

This is exactly the way we do business at SCA.  We believe that service and advice should be a customized fit.

You don’t have to rely on a coin-flip or some outsider’s spreadsheet on his website.
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