Suze Orman Roth IRA Show Question

[Guest mark1967]

I recently caught her show in which I believe she says that I can withdraw any amount from my Roth IRA as long as I do not touch the interest...If this is done, there will be no penalty...Now I really wasn't paying attention, but I think this is what she said, can anyone confirm this or lead me to a link to print out this rule for my accountant.

Thanks ahead of time for your help,

Mark1967

[Belgarath]

That's correct. There is an "ordering rule" for purposes of determining the taxable portion of a nonqualified distribution. And the nonqualified distribution is treated as coming first from contributions. Have your tax counsel refer to IRC 408(A)(d) and the accompanying Treasury Regulations.

[Appleby]

Not necessarily.

If you only made regular IRA contributions, (i.e. the $2,000 or $3,000 beginning for tax-years 2002), and then this statement would be true.

However, if you also made conversions from your traditional IRA to the Roth IRA during the last five years, then any withdrawal of the conversion amount will be subjected to the early withdrawal penalty, unless you meet an exception.

See the article at the following link for details, including an explanation of the ordering rules.

http://www.investopedia.com/articles/retir...t/03/030403.asp

[Guest mark1967]

Wow, I didn't expect this much help so fast, thanks everyone....However, I did convert my IRA to Roth in 1999, so I do not meet the 5 year rule, so I prob. will have to pay a 10% penalty...That's still better than taking out an equity loan to cover my 2nd home downpayment...

Mark1967

[jevd]

Not so fast with that withdrawal. Check the cost of your loan ( low rates & deduction of interest on income tax) vs the expected return of tax free return on your investment if you leave it in the ROTH IRA Include the 10% penalty in your calculations and you may find the loan is cheaper.

[John G]

I concur, not so fast with that withdrawal. It is not all that easy getting money in a Roth. The 10% penalty exceeds what most loans will cost in a year. Many loans allow you to deduct the interest. At a minimum, you could consider getting some kind of bridge loan or use your margin borrowing power for one year which would avoid the penalty... actually about just over 8 months left to avoid the penalty if I have your facts correct. You might be able to do a short term note with a family member who is currently complaining about CDs paying 2%. Honest - money is on sale right now. When the cost to borrow is so cheap, why raid a great tax shelter?

Think twice before raiding the Roth. Think three times! Try looking at your circumstances with more creativity.

Do not single source on your investment knowledge. Especially relying on a media figure like Suzie O... some of her advice leaves out a lot of the details that are very important. You will probably get better advice at this web site from the composite of accountants, tax pros and investors.

[Guest mark1967]

Great information, thanks...

mark