Augustine <> writes:
> On Dec 27, 4:56*pm, "Default User" <defaultuse...@yahoo.com> wrote:
>> It's not quite the way they indicate. The IRS lays out the rules here:
>>
>> <http://www.irs.gov/retirement/article/0,,id=152956,00.html#distns>
>>
>> It's not at all like a Roth IRA.
>
> http://www.irs.gov/retirement/articl...956,00.html#24 actually
> confirms that unqualified distributions of the principal may be done
> penalty and tax-free after 5 years, as Wikipedia stated. Or am I
> missing something?
My reading of it is that, unlike a Roth IRA, distributions are
not "contributions first" but rather, more somewhat similar to
Roth conversions, prorated.
For example:
Roth IRA - contribute $5000. It grows to $6000. You may now
withdraw $5000 with zero tax or penalty consequences. If you
take $5500, $500 of it will, if not qualified, be taxed and
penalized.
Roth 401(k) - contriubte $5000. It grows to $6000. Now if
you take an unqualified distribution of any size, 5/6 of it
is untaxed and no penalties, but 1/6 of it will be taxed and
penalized. To return to the above example, if you now take
a $5000 distribution, you don't get your $5000 contribution
back but rather, you get $4166.67 tax/penalty free and you
will pay taxes and penalties on $833.33.
I sincerely hope someone will clarify for me wether this is
or is not the case.
And if it is the case, why wouldn't one just roll the money
over to their Roth IRA and then take the distributions under
those rules? (Assuming he or she has had a qualifying event
which allows the rollover, such as leaving that employer).
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
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