The Roth IRA pension plan from Sense Financial LLC states that no taxes are due on withdrawals and distributions as long as the account owner turned 59 ½ years old. However, there are Roth IRA withdrawal rules applicable to those who take their distribution before reaching the age of 59 ½.
Account holders who opted to take their distribution before they reach the age of 59 ½ are subject to taxes and early withdrawal penalties. A total of 10% withdrawal penalty or tax is due on any type of investment gains or income which is not considered Roth IRA conversions or contributions, according to the Treasury Reg. 408A-6 and IRC 408A. When the distributions from the Roth IRA pension plan are taken earlier, the distributed amounts are classified into two different categories. The two categories will determine if the distributed amounts are subject to penalty and taxable or they could come out without being subjected to taxes.
Roth IRA Pension Plan
The first category to determine penalties or taxes for early distribution withdrawal is the Roth IRA conversions and contributions. The contributions in this category are distinct because the amounts are already subjected to tax prior to the inclusion of the funds in Roth IRA. Withdrawn amounts which do not exceed the Roth IRA contributions or conversions are not taxable or subject to early distribution penalties. Nevertheless, any distributed amounts which are considered in excess of Roth IRA conversions or contributions and are typically considered investment returns will be taxable and subject to a 10% withdrawal penalty.
Based on the example given by the Sense Financial experts regarding this pension plan type, Roth IRA owners who opted to withdraw his contribution at the age of 45 and has, for instance, a $65,000 contribution is required to comply with the rules. The account balance will consist of the $15,000 Roth IRA contributions, Roth IRA conversions amounting to $20,000 and the $30,000 worth of investment returns. Account owners who take the total distribution will enjoy a $35,000 non-taxable amount and free from early withdrawal penalty. That’s because this amount is considered Roth IRA conversions and contributions and already paid in terms of its taxes. The remaining $30,000 distributed amount, however, is subject to 10% early withdrawal penalties and included as taxable income for owners under 59 ½ years. Account holders unsatisfying the qualified retirement age are recommended to avoid early distribution withdrawal. After all, the same money will help you get through retirement easily. A penny saved and invested today is more than a couple earned in future.