Originally Posted by derohanes
So just for my clarification, in my scenario, I would not pay tax on the $5K until I withdrew it from the IRA. I would pay on the $15K as income as I withdrew it. If that is the case, if it were a Roth, I wouldn't pay anything?
I would pay on the $15K as income as I withdrew it===correct
If that is the case, if it were a Roth, I wouldn't pay anything===>>>>>>>>>>>no aslongas you can satisfy the requirements here; yu must pay taxes on your R-IRA withdrawal;1. if you are under 59 1/2. It’s true that you can withdraw your contributions at any time, no matter how old you are, tax free. However, once you start withdrawing earnings, the story changes. If you aren’t 59 1/2, and you withdraw earnings except in specific cases, including disability or etc, you will pay income taxes on that money. On top of that, you will also be levied a 10% tax early w/d penalty by the IRS. let’s say you contribute $3k each year to your r- IRA. After two years, your account contains $6,500. you decide that you need a little extra money to take care of an unexpected expenses. you are 43. So, if you want to withdraw money, you can withdraw up to $6k without pay taxes, because that is how much you put in over the course of the two years. However, if you withdraw more than $6k,your contributions for 2 years the amount beyond that will be taxed by irs/your state — and you’ll have to pay a 10% penalty on top of that.
2;also aslongas You Have Had Your Account Less than 5 Years, then, you can’t start withdrawing earnings without penalty until you have had the account for 5 years and it doesn’t matter how old you are. Let’s say you’re 58. You open a R-IRA, and contribute $5k. For the next few years, you contribute that amount of money. So, after four years of contributions, you have $20k in contributions, plus another $3k in earnings, for a total of $25k. Even though you are now 62, and beyond the 59 1/2 milestone, you haven’t had your R-IRA for at least 5 years. This means that if you withdraw more than $20k, you will be subject to income tax on the money. However, since you are beyond age 59 1/2, you don’t have to pay the 10% early w/d penalty.