Money Market account in a Roth quick question

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marklearnsbogle
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Money Market account in a Roth quick question

Post by marklearnsbogle » Tue Sep 18, 2018 11:38 am

I have a small sum of cash I'd like park somewhere and leave it be/earn something; currently it's in my bank savings account not earning much interest.

Two questions: If it's in a money market (VMFXX) in the Roth, is it subject to any taxation? I will be 59.5 in a few months, so I'm assuming after that I can make withdrawals freely if I'd need/like to do so?

Thanks.
"Nothing is simpler than owning the stock market and holding it forever, and that’s essentially the idea behind the index fund.” - Bogle.

GrowthSeeker
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Joined: Tue May 15, 2018 10:14 pm

Re: Money Market account in a Roth quick question

Post by GrowthSeeker » Tue Sep 18, 2018 11:47 am

marklearnsbogle wrote:
Tue Sep 18, 2018 11:38 am
I have a small sum of cash I'd like park somewhere and leave it be/earn something; currently it's in my bank savings account not earning much interest.

Two questions: If it's in a money market (VMFXX) in the Roth, is it subject to any taxation? I will be 59.5 in a few months, so I'm assuming after that I can make withdrawals freely if I'd need/like to do so?

Thanks.
Once money is in a Roth, it is never taxed again and it’s growth is never taxed again as long as you don’t take anything out of it for 5 years. The clock starts ticking when you make your first contribution to your first Roth. AFAIK

I don’t think you even have to be a certain age to withdraw without penalty. If I’m wrong someone will correct me.
Just because you're paranoid doesn't mean they're NOT out to get you.

MotoTrojan
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Re: Money Market account in a Roth quick question

Post by MotoTrojan » Tue Sep 18, 2018 11:55 am

Seems like a waste of valuable tax free growth potential. I’d leave the Roth in equities and some bonds as needed.

sport
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Re: Money Market account in a Roth quick question

Post by sport » Tue Sep 18, 2018 12:24 pm

Roth contributions require earned income, and are part of your total IRA limit per year. There are also limits on income to be eligible for Roth contributions. Rollovers are different.

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marklearnsbogle
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Re: Money Market account in a Roth quick question

Post by marklearnsbogle » Tue Sep 18, 2018 1:00 pm

[/quote]
Once money is in a Roth, it is never taxed again and it’s growth is never taxed again as long as you don’t take anything out of it for 5 years. The clock starts ticking when you make your first contribution to your first Roth. AFAIK

I don’t think you even have to be a certain age to withdraw without penalty. If I’m wrong someone will correct me.
[/quote]
Thanks - that's helpful! I always forget about the five year thing, which I believe affects only the earnings.
"Nothing is simpler than owning the stock market and holding it forever, and that’s essentially the idea behind the index fund.” - Bogle.

kaneohe
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Re: Money Market account in a Roth quick question

Post by kaneohe » Tue Sep 18, 2018 1:32 pm

GrowthSeeker wrote:
Tue Sep 18, 2018 11:47 am
marklearnsbogle wrote:
Tue Sep 18, 2018 11:38 am
I have a small sum of cash I'd like park somewhere and leave it be/earn something; currently it's in my bank savings account not earning much interest.

Two questions: If it's in a money market (VMFXX) in the Roth, is it subject to any taxation? I will be 59.5 in a few months, so I'm assuming after that I can make withdrawals freely if I'd need/like to do so?

Thanks.
Once money is in a Roth, it is never taxed again and it’s growth is never taxed again as long as you don’t take anything out of it for 5 years. The clock starts ticking when you make your first contribution to your first Roth. AFAIK

I don’t think you even have to be a certain age to withdraw without penalty. If I’m wrong someone will correct me.
It's a bit confusing since there are 2 types of 5 yr clocks.....age of conversion and age of Roth and they rule at different times depending on your age. This helpful table by kawill of fairmark.com will avoid having to think or memorize: http://fairmark.com/forum/read.php?2,54 ... #msg-85536
Note that earnings are subject to tax and/or penalty until you meet both the age requirements for you and the Roth.

Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 25, 2018 10:02PM
Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-Yes (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.

Notes:

1) Conversions in each section come out in order of the earliest conversions first. Rollovers from employer plans other than Roth accounts should be treated as conversions.

2) Any exception to the 10% penalty for IRA distributions can waive the penalty even if under age 59.5.

3) The tables do not apply when the first home exception is listed on line 20 of Form 8606, or for return of contributions or excess contributions.

4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables.

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marklearnsbogle
Posts: 134
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Location: New York City

Re: Money Market account in a Roth quick question

Post by marklearnsbogle » Tue Sep 18, 2018 3:37 pm

kaneohe wrote:
Tue Sep 18, 2018 1:32 pm
GrowthSeeker wrote:
Tue Sep 18, 2018 11:47 am
marklearnsbogle wrote:
Tue Sep 18, 2018 11:38 am
I have a small sum of cash I'd like park somewhere and leave it be/earn something; currently it's in my bank savings account not earning much interest.

Two questions: If it's in a money market (VMFXX) in the Roth, is it subject to any taxation? I will be 59.5 in a few months, so I'm assuming after that I can make withdrawals freely if I'd need/like to do so?

Thanks.
Once money is in a Roth, it is never taxed again and it’s growth is never taxed again as long as you don’t take anything out of it for 5 years. The clock starts ticking when you make your first contribution to your first Roth. AFAIK

I don’t think you even have to be a certain age to withdraw without penalty. If I’m wrong someone will correct me.
It's a bit confusing since there are 2 types of 5 yr clocks.....age of conversion and age of Roth and they rule at different times depending on your age. This helpful table by kawill of fairmark.com will avoid having to think or memorize: http://fairmark.com/forum/read.php?2,54 ... #msg-85536
Note that earnings are subject to tax and/or penalty until you meet both the age requirements for you and the Roth.

Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 25, 2018 10:02PM
Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-Yes (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.

Notes:

1) Conversions in each section come out in order of the earliest conversions first. Rollovers from employer plans other than Roth accounts should be treated as conversions.

2) Any exception to the 10% penalty for IRA distributions can waive the penalty even if under age 59.5.

3) The tables do not apply when the first home exception is listed on line 20 of Form 8606, or for return of contributions or excess contributions.

4) Any rollover balances from designated Roth accounts should be included in the correct contribution or conversion portions of these tables.
Thanks, Kaneohe. This is extremely helpful. It has been more than five years since opening the Roth, and I am 59.5 shortly, so luckily I would fall into the simplest category.
"Nothing is simpler than owning the stock market and holding it forever, and that’s essentially the idea behind the index fund.” - Bogle.

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