Roth Ira Conversion And Five Year Rule  

      A Roth IRA, also known as Roth Individual Retirement Account, is a type of retirement savings plan which is ideal for people who anticipate their income increasing later in life.

     The contributions to a Roth IRA are done after taxes and the earnings are tax exempt. The difference between a traditional IRA and a Roth IRA is that the earnings in a Roth IRA are tax exempt but they may or may not be tax free.

      If you have a traditional IRA, you can convert the funds into a Roth IRA. This can be done by depositing the money in a Roth IRA with 60 days of receiving it. This means that a Roth IRA conversion account can be created when you convert your regular IRA account into Roth IRA. In order to do a Roth IRA conversion, you have to meet certain criteria and one of them is that your adjusted annual gross income should not be more than $100,000. This eligibility criterion is for single taxpayers. While adjusted annual gross for married couple, who pay taxes jointly, should not be more than $169,000.

      If you use all the money in a traditional IRA and convert it to a Roth IRA, you will have to pay income tax as money that is deposited in a Roth IRA is after tax contribution.

      Now what happens if you want to make a withdrawal from your Roth IRA? The good news is that you can withdraw money from your Roth IRA after a period of 5 years. The 5-year period starts from the first year of the contribution to a Roth IRA and not the calendar year in which the contribution is made. However, certain criteria have to be met for the withdrawal. You have to be 59 1/2 years, or you have become disabled or you want to buy your first home, or you or your family members want to pursue higher education.


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Roth Ira Conversion And Five Year Rule






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