Intentional Roth penalty over taxable account?

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ERMD
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Intentional Roth penalty over taxable account?

Post by ERMD » Sat Dec 28, 2013 10:20 am

I'm sure the answer to the question is no, because otherwise people would do it all the time, but for curiosity's sake..

Let's say you're 30, and you know you're going to need to start drawing on funds by 40.. is there any advantage to putting money into a Roth, and then withdrawing it (+ penalty) in your 40s, vs putting that money in a traditional taxable account? I'm sure there's something I'm missing here. Does the penalty effectively convert the Roth into a ordinary taxable account?
between scotch and nothing, i'll take scotch. -- faulkner

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BL
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Re: Intentional Roth penalty over taxable account?

Post by BL » Sat Dec 28, 2013 10:43 am

There is no penalty on the amount you put in, only it's growth.

See http://www.bogleheads.org/wiki/Roth_IRA ... gency_fund in Wiki.
Last edited by BL on Sat Dec 28, 2013 10:45 am, edited 1 time in total.

Khanmots
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Re: Intentional Roth penalty over taxable account?

Post by Khanmots » Sat Dec 28, 2013 10:44 am

Why are you needing to pull the money at 40?

Depending on why you might be able to access the earnings as well without penalty.

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ERMD
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Re: Intentional Roth penalty over taxable account?

Post by ERMD » Sat Dec 28, 2013 10:50 am

BL wrote:There is no penalty on the amount you put in, only it's growth.

See http://www.bogleheads.org/wiki/Roth_IRA ... gency_fund in Wiki.
Very helpful - thank you!
between scotch and nothing, i'll take scotch. -- faulkner

ajcp
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Re: Intentional Roth penalty over taxable account?

Post by ajcp » Sat Dec 28, 2013 10:58 am

If you're only taking out contributions or taking it out for something penalty free, then that could work. But if you plan to take out the whole thing and pay the penalty on all earnings, probably not. Maybe you could construct circumstances where you'd come out ahead with the Roth, but it probably wouldn't be much or worth the effort.

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