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Roth IRA Rules

What is a Roth IRA?

A Roth IRA is a type of Individual Retirement plan (IRA). It starts completely non-qualified as far as tax is concerned. Any amount that an individual may earn in a Roth IRA may also be considered to be non-qualified. This means once all the funds that a person earns in a Roth IRA are removed during retirement, it will not be taxed by the federal government. Given below are questions that have been answered by the thousands of Experts about Roth IRA.

Can a Roth IRA be converted to a revocable trust?

It may not be possible to convert a Roth IRA into a revocable trust. However, one may make the revocable trust the beneficiary of the Roth IRA. If the Roth IRA meets the 5 year contributions at the time of the individual’s death, all the money that goes into the trust from the IRA account will become tax free.

What rules would a non spouse beneficiary of a Roth IRA have to follow while inheriting benefits?

If a non spouse beneficiary inherits an individual’s Roth IRA, the non spouse may have to follow certain rules. First of all, the inheritance will be subjected to estate tax if its value is not under the minimum taxable inheritance for that particular year. The beneficiary many not combine the IRA with their own IRA or make any contributions to it. The individual may either receive the IRA amount all together before December 31st of that year or they may receive it in parts over a period of their lifetime. If the beneficiary chooses the second option, the distribution will stop on the death of the beneficiary and be passed onto the next one. The beneficiary may not withdraw from the account for at least a period of 5 years after it was established for it to be exempt from income tax.

Can a person’s IRA account own assets or loan money to someone?

It may not be possible for an IRA account to own assets to which the individual may have direct access. The individual may also not be able to loan money to anybody from the IRA.

What income tax rules apply to Roth IRAs?

A Roth IRA may have been established for a period of minimum 5 years before it is withdrawn in order for it to be tax free. The money that an individual earns from it would become tax free on the first day of the fifth taxable year from the date of its establishment. If the earnings are withdrawn before 5 years for a reason other than premature death, the individual may also have to pay a penalty of 10% besides the income tax. However, if the money is withdrawn due to the IRA owner’s premature death, the penalty will not be levied.

Can people contribute to a traditional IRA and then convert it to a Roth IRA?

An individual may be able to contribute to a traditional IRA account and convert it to a Roth IRA. He/she may not be required to pay any penalty either.

There are various kinds of retirement benefits that are available to people. Depending on your age and situations, you must be able to decide which of these benefits best suits your needs. However, you need to have at least the basic knowledge about these benefits so that you are able to choose between the various options available. Some of the features of these benefits may sometimes overlap and make it confusing for you to understand. In such situations, you may consult an Expert and get your questions and doubts cleared.

Ask a Financial Professional

Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: General
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Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
43581946
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Rakhi Vasavada
Financial and Legal Consultant
Satisfied Customers: 2073
Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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Recent Roth IRA Questions

  • I'm planning for my kid's future and I've been reading more

    I'm planning for my kid's future and I've been reading more and more about the benefits of Roth IRA vs a plan 529 for their college education. I'm uncertain which is better and more flexible for withdrawing funds in the future. Currently I have a 529 plan for my 2 year old daughter, but for my newly born son I want to review other alternatives.
    What is your opinion on this? Assuming the uncertainty of the future and whether they kids may want to pursue a career that is more vocational (graphic design, photography, etc) which may not be considered an allowable expense under the 529 plan. Also, what would be the tax implication in this scenario when trying to withdraw funds in 18 years from now.
    Any idea will be helpful.
    Thank you.
  • My father has passed and has left my mom enough money to payoff

    My father has passed and has left my mom enough money to payoff the house if she wants to...... Is that a good idea, or should she re-invest the life insurance payout.
  • Is it wise to invest $15K all at once now that we seem to be

    Is it wise to invest $15K all at once now that we seem to be near a possible bull market correction? I have an emergency fund, am using my employer match 401k, and have paid off auto and school loans I am looking to put money into a roth IRA and taxable account by using ETF index funds.
    Although I will be returning to school in January and will be living off one income (spouse's) until I finish my graduate degree in three years. Should I invest this extra money as said or keep in a "high yield 1%" savings account until needed later- or use toward tuition?
    http://fc.standardandpoors.com/cms/Custom_Site/57488/gallery/S&P_Chart_FINAL.pdf
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