Remember all the potential tax benefits that a Roth IRA can offer to the owner and its use during retirement. Roth IRAs are funded with after-tax contributions and have the potential to grow tax-deferred and distributed tax-free, are not subject to the mandatory distribution rule, and can offer other benefits when it comes to estate planning. In many cases, it can be funded by rolling over funds from a 401(k) or IRA through a taxable conversion after consulting a tax advisor.
Qualified distributions are those that occur at least five years after the account is established. At least one of the following conditions must also be met: The account holder is 59½ or older at the time of withdrawal; the account holder is permanently disabled; distributed assets (up to $10,000) are used toward the purchase or rebuilding of a first home for the account holder or a qualified family member; or withdrawals are made by the account beneficiary after the account holder’s death. Roth IRA conversions require a 5-year holding period before earnings can be withdrawn tax free and subsequent conversions will require their own 5-year holding period. In addition, earnings distributions prior to age 59½ are subject to an early withdrawal penalty. LPL Financial does not provide tax advice, please consult with a qualified tax advisor regarding your personal situation. (10/20)