Yes. Any funds you convert during the tax year, other than amounts that represent nondeductible (after-tax) contributions to your traditional IRA, are treated as taxable income for that year.
This means that if the contributions originally made to your traditional IRA were deductible, you may have to pay income tax on the amount converted to the Roth IRA. Also, although the premature distribution tax (for IRA withdrawals prior to age 59/2) does not apply when you convert funds to a Roth IRA, it may apply if you later withdraw from the Roth IRA within five years after you convert funds. Finally, you cannot convert required minimum distribution amounts from a traditional IRA to a Roth IRA. Given the possible tax consequences of this conversion, you may wish to consult experienced tax and financial professionals before you commit to the process.
Note: You can also roll over ("convert") funds from an employer sponsored-retirement plan to a Roth IRA. The same rules described above generally apply.
Can I take money from my IRA without any penalty?
It depends. If you are 59 1/2 or older, you can take money from your traditional IRA without penalty. In contrast, if you withdraw from your IRA before age 59 1/2, the taxable portion of your distribution may be subject to a 10 percent penalty on top of whatever income taxes you owe on the distribution. This penalty, known as the premature distribution tax, is intended to discourage people from exhausting their IRA funds before they retire.
However, there are some exceptions to this rule. Premature IRA withdrawals made by a disabled person may be exempt from the penalty. If an IRA owner dies before age 59/, distributions paid to you as a beneficiary of the account are not subject to the penalty. If you need supplementary income, you can take IRA distributions as a series of "substantially equal payments" over your life expectancy or the joint life expectancy of you and your beneficiary. These distributions will avoid the penalty as long as you don't modify the payments within certain time frames. Subject to limits and conditions, the penalty tax generally will not apply to IRA distributions taken to pay qualifying medical expenses, health insurance premiums while unemployed, higher education costs, and qualified first-time home-buyer expenses (up to $10,000 lifetime from all your IRAs). It also does not apply to amounts rolled over from one IRA to another (assuming you follow the rules for rollovers), to conversions of traditional IRAs to Roth IRAs, to amounts that the IRS levies from your IRA to cover your tax bill, or to qualified reservist distributions. Other exceptions may also apply.
Qualified distributions from your Roth IRAs are federal income tax--and penalty taxfree. Distributions are qualified if you satisfy a five-year holding period, and you are (a) age 59 1/2, (b) disabled, (c) deceased, or (d) you have qualified first time home-buyer expenses. The taxable portion of nonqualified distributions from your Roth IRAs is subject to the same 10 percent penalty rules that apply to traditional IRAs. (Special rules may apply if you take a nonqualified distribution from your Roth IRA within five years of a conversion.)
About great south advisory group.
The Great South Advisory Group is the approved retirement income planning firm to the South Carolina Nurses Association. As a benefit of membership in the SCNA, you can receive your personalized Retirement Income Analysis report for no charge. Simply call to schedule your complimentary appointment at 803.223.7001. Visit their website at www.greatsouthadvisorygroup.com.
Janney Montgomery Scott LLC. Member: NYSE, FINRA, SIPC. Portions of this article were prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015
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|Title Annotation:||News You Can Use|
|Publication:||South Carolina Nurse|
|Date:||Jan 1, 2016|
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