Liquidating roth ira
The Roth IRA holder will owe income taxes on any earnings withdrawn.
However, the 10 percent early withdrawal penalty tax that applies to traditional IRAs generally does not apply to Roth IRAs except in cases of failed conversions from a traditional IRA.
If you owe significant tax on your income at the end of the year, you will not "get in trouble" by not paying estimated tax, but there could be underpayment penalties added on to any balance that you owe.
In general, you will not need to pay an underpayment penalty if the following apply: You expect to owe less than 00 dollars in federal tax and/or You had no tax liability in 2006Your total amount of withholding and estimated payments is at least as much as your 2006 tax (or 110% of your 2005 tax if AGI more than 150K) If you did have tax liability in 2006, what you need to do is estimate your 2007 tax liability with all income including the IRA distribution, subtract any tax withholding, and see if the remainder is less than 1000.
However, the caveat to leaving a Roth IRA as an asset to inherit is that doing so implicitly means that the original IRA owner will have paid taxes to get money into the account, either through systematic contributions spanning many years, or possibly through a large Roth conversion (or a series of partial Roth conversions over time).
Which means the benefit of inheriting a Roth IRA is actually more nuanced – if the IRA owner pays “too much” in taxes to create the Roth, the beneficiary may have been better off to simply inherit a traditional IRA and pay the taxes themselves instead!
I haven't made much money on it yet so I don't think it would be extremely negative. To count as a qualified distribution, a Roth IRA distribution cannot be made before the end of the five-tax-year period beginning with the first tax year for which the individual (or the individual's spouse) made a contribution to the Roth IRA.
In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.
The tax-free nature of growth on a Roth IRA makes it a highly appealing investment account to hold, and a similarly appealing type of account to inherit.
All else being equal, it’s clearly better to be the beneficiary of an account that will never be taxed, than one that will be taxed over time.
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