Basically Posted April 25, 2023 Share Posted April 25, 2023 Can someone point me to how ROTH payouts are taxed? I know the 5 year rule but here is where I am unclear: Situation: Susan has been making ROTH deferrals since 2015. She makes ROTH deferrals every year. The last 7 years she has amassed $100K+ (deferrals and earnings) Susan is over 59-1/2 and would like to take a distribution. Key Points: Susan opened the ROTH account over 5 years ago ... ✔️ Susan is older than 59-1/2... ✔️ So - Is the only rule that the ROTH begin date of the account be 5 years or older? Does it matter that some of her ROTH deferrals are less than 5 years old? Would Susan's distribution (which includes contributions and earnings) be tax free? As you know, a client comes to you telling you how it will be taxed. I just want to be sure. When she dies, with the Roth account non-zero, what is the taxation to her beneficiary? Thanks Link to comment Share on other sites More sharing options...
CuseFan Posted April 25, 2023 Share Posted April 25, 2023 Qualified distributions of Roth accounts (principal and earnings) are tax-free. Qualified distributions are after age 59 1/2 AND if 5+ years from first Roth contribution. The 5 year rule does not apply to each contribution. However, if there were any in-plan Roth conversions, if I remember correctly the 5 year clock applies separately to each conversion. Death benefit distribution of Roth would also be tax free, but do not know if 5 year requirement applies to death benefits. Paul I and Lou S. 2 Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com Link to comment Share on other sites More sharing options...
Lou S. Posted April 25, 2023 Share Posted April 25, 2023 ROTH-IRA or ROTH-401(k)? Contributions or conversions? Whether it is a ROTH-IRA or a ROTH-401(k) if all of the money is contributions plus earnings than the distribution is a qualified distribution and there will be no taxes. It does not matter if some of the contributions are less than 5 years old, unless they are conversions in which case each conversion is subject to the 5 year rule. The beneficiary would have no taxation on the distribution if she dies since it is all a qualified distributions. CuseFan 1 Link to comment Share on other sites More sharing options...
Basically Posted May 4, 2023 Author Share Posted May 4, 2023 Thank you. I appreciate your responses. Link to comment Share on other sites More sharing options...
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