In: Accounting
Roth IRA:
Please give a thumbs up if you find this answer useful!
A. Tax Treatment in the year of Contribution:
Any Contribution made to Roth IRA can be made from after-tax money. This means Investors need to pay tax on money going into Roth IRA in the year of contribution. Hence, there is no favourable tax treatment in the year of contribution, but the investor will not have to pay tax on withdrawals from the fund.
B. Tax on Income on Roth IRA:
Earnings from Roth IRA are tax-free as long as their withdrawal from fund remains a qualified withdrawal according to specific conditions. If an Investor's age is more than 591/2 years and Roth IRA is more than 5 years old, Investor will not have to pay taxes. However is such conditions are not satisfied, it will lead to liabilities of taxes and 10% withdrawal penalty.
C. Liquidating Roth IRA without penalty:
Juanita can begin liquidating Roth IRA without any penalty after reaching the age of 591/2 years and holding Roth IRA for 5 years or more. She can also make a withdrawal for buying a first home (Lifetime Limit: $10,000) or if she is disabled.
D. Penalties for not withdrawing fund:
Unlike Traditional IRA, There are no penalties if withdrawals are not made from the fund after the age of 72. There is no compulsory withdrawal to be made in the lifetime of the original owner of the fund.
E. Tax Treatment at the age of 70:
Juanita will not be liable to any tax or withdrawal penalty if she makes qualified withdrawals as she has attended age beyond 591/2 years and held the fund for more than 5 years. If withdrawals are not qualified she will be required to pay federal and state tax which might get due.