Shares fall as Amazon reports surprising top-line miss. Earnings come in ahead of Wall Street?s projections.

Amazon earnings fall; sales miss targets

Prescient bet on volatile video provider boosts gains.

Fantasy Earnings Trader: Fantasy Earnings leader wins week with Netflix

Red Hat Earnings Jump, Beat Forecasts

Matthew F asked: When looking at my 401k statement, there is an “Earnings” section and a “Appreciation/Depreciation” section. what is the difference?
Question posted courtesy of: Tina

What is the difference between 401k earning and appreciation?

Matthew F asked: When looking at my 401k statement, there is an “Earnings” section and a “Appreciation/Depreciation” section. What is the difference?
Question posted courtesy of: Tina

What is the difference between 401k earning and appreciation?

Analysts anticipate another stellar quarter at Netflix Inc. when the company reports on Monday, but they?ll be listening closely for the company?s latest comments on rising content costs.

Netflix expected to post strong earnings

The IRA withdrawal rules may be different, depending on whether the IRA account is a traditional one or a Roth IRA variety. Any withdrawals from a traditional IRA account are taxed using the ordinary income tax, because these account contributions are made from earnings which are pre tax instead of post tax. No taxes are collected on the funds contributed to a traditional account, or collected as part of a traditional IRA rollover transaction. With a Roth IRA the IRA withdrawal rules are different, because any contributions to this type of account are made after taxes have been deducted from the amount. this means that any withdrawal from a Roth account is normally free from any taxes in most cases, but there are some exceptions.

When you compare Roth IRA withdrawal rules versus a traditional IRA there are many of the same components included. Both types of account have an age requirement in the IRA withdrawal rules, and any funds withdrawn before the age of fifty nine and a half may be taxed with a penalty tax even if the account is a Roth IRA. the penalty involved for an early account withdrawal is usually ten percent of the withdrawal amount, and this is assessed because a withdrawal is made before the age requirement. in some plans a 401k hardship withdrawal can be made for certain specified reasons, such as the purchase of a first home or to pay off past due medical bills, and both types of IRA account may allow this.

The Roth IRA withdrawal rules also specify a five year requirement, which can be confusing to some. Your Roth IRA must be open for a minimum of five years regardless of your age before withdrawals are exempt from any tax penalty. As long as you have reached the minimum age and had the account for at least the required time limit there are no taxes on any withdrawal. With a traditional IRA there will still be taxes assessed, because these funds were never taxed initially. some investors cashing out 401k plans at retirement may pay thousands of dollars or more in taxes from this income, but with a Roth IRA the withdrawals are not taxed at all when the age and time requirements are met.

See also:

• Borrowing From 401K for Credit Card Debt – good or bad?
• Average 401k Balance By Age Review
• How Is Roth IRA Eligibility Determined?
• Retirement Cash Flow Planning Tips
• Compare Roth IRA vs. 401k Plans

IRA withdrawal rules: Regular Vs. Roth

What are the Roth IRA distribution rules?

Do you owe taxes and penalties for early distributions?

If you know the distribution rules before you make a withdrawal, you’re far less likely to make a costly mistake.

For instance, did you know the IRS mandates that any withdrawals from your Roth IRA must be made in a specific order?

If not, you could find yourself hit with taxes and penalties from a distribution you thought was tax and penalty-free.

So make sure you know these Roth IRA distribution rules.

Roth IRA Distribution Order

The Roth IRA distribution rules mandate that your withdrawals must occur in a particular order.

According the IRS, you must take distributions in the following order:

• Annual Principal Contributions
• Rollover and Conversion Funds
• Earnings and Investment Gains

And lest you think otherwise, the order of your Roth IRA distributions does matter.

Each of the three categories – your original contributions, any rollover or conversion funds you may have, and any investment gains you generated – are treated differently under the Roth IRA distribution rules. So it’s very important to know the proper order.

Let’s take an in-depth look at how each type of distribution is treated.

Distribution Rules for Original Contributions

The Roth IRA distribution rules treat your original contributions differently than other funds in your Roth IRA.

While in most cases an early withdrawal of rollover funds, conversion funds, or investment gains triggers an income tax liability and a 10% early withdrawal penalty, your annual after-tax Roth IRA contributions are the only funds you can withdraw tax-free and penalty-free at any time, under any circumstance, and for any reason.

You don’t have to reach a certain age or meet any other arbitrary requirements to withdraw your original contributions.

And that makes sense. Right? after all, it’s your money, and you already paid taxes on it.

Let’s say you’re 45 years old, and you open and fund a Roth IRA, contributing the maximum amount.

Ten years later, your account has a total market value of $131,000 – $50,000 from ten $5,000 annual contributions and $81,000 in investment gains.

Under the Roth IRA distribution rules, Roth IRA principal withdrawals are tax-free and penalty-free.

That means you can withdraw up to $50,000 before you have to worry about income taxes or early withdrawal penalties.

But what if you take an early distribution of non-contribution funds from your Roth IRA?

Distribution Rules for Other Funds

If you take an early distribution of other funds, such as rollover funds, conversion funds, or investment gains, odds are you’ll owe income taxes and a 10% early withdrawal penalty.

The Roth IRA distribution rules state that, in order to avoid taxes and penalties on most early distributions, you have to meet two conditions:

• Be age 59 or older
• Meet the 5 year rule requirements

The first rule is self-explanatory. in most cases, you need to be age 59 or older in order to take a tax-free, penalty-free distribution of non-contribution funds – although there are Roth IRA withdrawal exceptions.

The second rule – the Roth IRA 5 year rule – isn’t as obvious and needs to be explained. But it too must be met before you take tax-free, penalty-free distributions of non-contribution funds.

So what’s the 5 year rule?

In short, it states that you must open and fund your Roth IRA for at least five tax years before you can distribute non-contribution funds tax-free and penalty-free.

For instance, let’s say you open a Roth IRA in 2014 and fund it with a $1,000 contribution.

The clock starts ticking, and 2014 is your first tax year.

2015 is number two, then 2016 is three, 2017 is four, and 2018 is five.

As a result, on the first day of 2019, your Roth IRA is in compliance with the 5 year rule.

Does that make sense?

If you aren’t in compliance with these two Roth IRA rules, then any distributions of non-contribution funds are subject to taxes and penalties.

10% Early Distribution Penalty and Income Taxes

Under the Roth IRA distribution rules, most early withdrawals of non-contribution funds are subject to income taxes and a 10% early withdrawal penalty.

For example, let’s say you’re 42 years old and in 25% income tax bracket. your Roth IRA has a total market value of $150,000 – $50,000 in original contributions and $100,000 in investment gains.

What happens if you close your account and withdraw all of the funds?

In this scenario, the first $50,000 you withdraw is tax-free and penalty-free.

Because, as you remember, you can withdraw your original contributions tax-free and penalty-free at any time and for any reason.

But what about the $100,000 investment gain?

Since you’re under age 59 , the $100,000 is added to your annual income and treated just like earned income for income tax purposes. So you’ll owe income taxes on it at your current rate.

In this case, you owe 25% of $100,000 – or $25,000 in income taxes.

But that’s not all. You also owe a 10% early withdrawal penalty which is applied to the entire balance of your investment gains.

In this case, that’s 10% of $100,000 – or a $10,000 early withdrawal penalty.

So all together, you owe $35,000 in taxes and penalties ($25,000 in income taxes and a $10,000 early withdrawal penalty).

Now that you understand the basics, are there any additional Roth IRA distribution rules you need to be aware of?

Make sure you understand one particular rule regarding Roth IRA conversions.

Conversion Distribution Rules

One of the Roth IRA distribution rules you can’t afford to forget is this…

Each Roth IRA conversion you perform is independently subject to the 5 year rule.

That means, even if your overall Roth IRA account is in compliance with the 5 year rule, your conversion funds must also be in compliance before you can take tax-free, penalty-free distributions of those conversion funds.

Let’s say it’s the year 2011, you’re 57 years old, and you convert $50,000 in your Traditional IRA into a Roth IRA.

You first opened your Roth IRA at age 45, and you’ve made the maximum annual contribution every year since.

When 2014 rolls around, you’re 60 years old, and your Roth IRA has a total market value of $200,000 – $50,000 in original contributions, $50,000 in conversion funds, and $100,000 in investment gains.

How much can you withdraw tax-free and penalty-free before taxes and/or penalties kick in?

Because your $50,000 in original contributions is always tax-free and penalty-free.

And while your overall account is in compliance with the 5 year rule and you’re older than age 59 , only four tax years have passed since you made your Roth IRA conversion.

So withdrawing your $50,000 in conversion funds will trigger an income tax liability and a 10% early withdrawal penalty.

And while your investment gains are tax-free and penalty-free because you’re 60 years old and your account has been open and funded for at least five tax years, you can’t withdraw a single penny of investment gains until you’ve withdrawn every penny of conversion funds.

Remember the Roth IRA distribution rules regarding the order of withdrawals?

• Annual Principal Contributions
• Rollover and Conversion Funds
• Earnings and Investment Gains

So keep this rule in mind if you’re thinking about taking a distribution any time soon and you’ve recently performed a Roth IRA conversion.

Roth IRA Rules for Distributions

The Roth IRA distribution rules dictate:

• The order in which your contributions are withdrawn
• Which distributions are tax-free and penalty-free, and
• When conversion funds are tax-free and penalty-free

Knowing the rules can save you from making a costly mistake, so take the time to commit the basics to memory. And unless you’re absolutely certain you’re aware of the consequences, never do anything without first seeking the advice and counsel of a qualified financial professional.

Our family funds our Roth IRA with this website. Learn how you can do it too!

Return to the top of Roth IRA Distribution Rules

Return to Roth IRA Rules

Return to the Your Roth IRA Website Homepage

Roth IRA Distribution Rules

A Feb. 28 story by MarketWatch gave incorrect information about earnings of two asset managers. The story has been corrected.

Corrections: Buy the fund, or the fund company?s stock?

Data for Wells Fargo and Wachovia Mortgage homeowners has recently been released and new information regarding permanent home loan modifications has been reported from the making Home Affordable Program. an increase in the number of total permanent modifications made by these two mortgage servicers was indicated within the report, which may bode well for…
Read more »

<a href="http://www.rwbpress.com/2010/12/22/investing-in-a-roth-ira-benefits-on-earnings-make-roth-accounts-more-popular-but-should-investors-convert/tag:news.google.com,2005:cluster=http://www.rwbpress.com/2010/12/22/investing-in-a-roth-ira-benefits-on-earnings-make-roth-accounts-more-popular-but-should-investors-convert/Wed, 22 Dec 2010 14:07:14 GMT 00:00″>Investing In A Roth IRA–Benefits On Earnings Make Roth Accounts More Popular …