Taking Roth money to buy farm.

[Guest Jeff Berlet]

My father and mother are 64 and 60 years old. They have $100,000.00 in a Roth IRA converted from a Keogh Plan. Can they now take that money and buy a farm without any penalties?

[JAMES PATRICK]

The GOOD news is they can take the money without the dreaded 10% penalty.

The BAD news is that if the conversion money is not in the Roth account for 5 years they have to pay regular taxes on the conversion and any earnings from the Roth.

[Guest Jeff Berlet]

Thanks Jim!

[John G]

For shorter time gaps, you may want to consider a "bridge" loan. Then you can tap the funds after the 5 yr period.

[Guest Mary Ann]

Jim, did you really mean they would have to pay income tax on the amount of "conversion" that was withdrawn if not in the account for 5 years? Wasn't the tax paid at the time of conversion? If the conversion was done in 1998 and they chose to pay over 4 years then the last 1/4th would be included in 2001. But other than that, only the earnings would be taxable if withdrawn. And of course there would be no 10% penalty since the owner is over 59 1/2.

If only the conversion amount was withdrawn, leaving the earnings in the account, then there would be no taxable event. Hope someone will correct me if this is not right.

[JAMES PATRICK]

MARY ANN,

YOU ARE ABSOLUTELY RIGHT.

They would only be required to pay taxes on any earnings that were withdrawn, taxes as you point out should have been paid on at least 50% of the conversion money by now (if the 4 year spread was selected) with the next installment due on 4/16/2001 and final one on 4/15/2002.

THANKS FOR THE GOOD CATCH.