ROTH IRA

[Guest LarryM 68]

Hello, i have a question about ROTHs. There seems to be some very intelligent people here so i appreciate & look forward to your help.

My wife is 44 and our plan is for her to retire between 55-57 yrs old.

Social Security is all she will have, and that of course won't be til 62 or older.

I just want to set up a simple CD type ROTH at our local credit union for her so that when she retires, she will have some monthly spending cash for a few years (from about 57-62)

Once she reaches 62 we should be fine then. I will be 56 and just retiring myself and will be eligible to withdraw from my 457k at that time. To compensate for the fact that i can start withdrawing at 56 instead of the normal age of 59 1/2, i contribute ALOT more. Anyway, thats another stary and slightly off topic from what my question is.

If she opens up a ROTH now, the plan is for her to begin withdrawing at 57.

Correct me if i am wrong here...

- Until she reaches 59 1/2, she will ONLY be able to withdraw contributions, right?

- Any interest money she makes will have to be left in til 59 1/2 otherwise it would be subjected to the 10% penalty, right?

If the answer to the above is YES & YES, then my plan is for her to contribute an amount accordingly so that from 57 to 59 1/2, whatever amount we decide that she can take out per month as spending money, it will not surpass the amount she has actually contributed, therefore insuring to avoid any 10% penalty.

Thanks.

[John G]

YES and YES

You have researched this issue well. However, I think you can do a little better than just using CDs, even for this short time. Your wife will contribute over 11-13 years, which at the max will add between 44,000 and 52,000. Perhaps you expect to withdraw all of this between age 57 and 62? I would look to a bond or dividend/income fund and perhaps even have 1/3 in a general common stock fund. Perhaps a target return in the 7-8% would match your risk and timeframe profile which would have you approaching 100,000 in this account. (no calculator handy to do a better estimate)

Also, you have the option of early "substantial equal payments" option with IRAs where there is no penalty. I believe they would apply to this account, allowing you to take 100% out over a defined period of time.