For a traditional IRA, I know that it is tax-deferred. So.. If I start to widthdraw say within 2 years, what is being taxed?? the intrest earned and also the 2000 dollars that I have initially put in??
I know for a Roth IRA, within a specified amount of time, when you start to withdraw, only the intrest is being tax, and there are not tax deductibles....
2006-07-08 03:38:27 · 4 answers · asked by travis 2 in Business & Finance ➔ Personal Finance
Everything that is in a Traditional IRA (your principal deposits and interest earnings) will be taxed when you withdraw it. It will be considered the same as income for the year. So as it goes in and grows, it becomes homogenized and there is no distinction between principal and interest as far as I know (but I am not an expert). And I believe the same holds true for a 401K.
I believe you may be confused on the Roth IRA. Anything you take out will not be taxed. You have already paid tax on what you put in, and the great thing about Roth's is that the earnings and interest are not taxed. That's why we take advantage of them. This answer assumes you are not over the income limits for the year in order to take full advantage of these benefits, and that you are over age 59 1/2 when you withdraw.
Also, with a Roth IRA, you can take out any amount you put in at any time. For example, I just put $5,000 into my Roth, but if I need it, or just change my mind, I can take it back out tomorrow. There is no requirement to make a deposit, so there is no penalty for taking it back out. I don't believe the five year rule applies, but again, I am not an expert.
2006-07-08 03:52:46 · answer #1 · answered by Da Boss 2 · 1⤊ 0⤋
When you withdraw from a traditional IRA, the amount you withdraw (doesn't matter if it's the original contribution or the interest earned) is taxed as your regular income at the time you withdraw it. Your contributions, assuming you qualify, are tax deductible.
For Roth IRA, your contributions are not deductible at the time of contribution, but your withdrawl is not taxed, regardless of whether it is your contribution or interest.
2006-07-08 10:45:36 · answer #2 · answered by syk 3 · 0⤊ 0⤋
Go Roth young man, go Roth.
2006-07-09 02:38:15 · answer #3 · answered by homerunhitter 4 · 0⤊ 0⤋
What?
2006-07-08 10:41:41 · answer #4 · answered by Taimoor 4 · 0⤊ 0⤋