Yep, a check for $5000 to the trustee along with a deposit slip showing how the cash is to be recorded ($2K for 2001, $3K for 2002) will meet all the rules. Roth IRAs are never tax deductable.
Regarding withdrawals, a little publicized fact is that with a Roth, access to your capital is UNRESTRICTED, with ZERO tax impact. As always, consult with your tax advisor before taking any steps like this. Lets say that you DO put in the $5,000 in January. Come August 2003, you get laid off from your job and have difficulty finding a suitable new job. The money in the Roth looks mighty tempting. So long as you ONLY take out what you put in, or less, there is no tax impact. If you take our MORE than what you put in, then you will have a recordable event on your tax return, and your taxes will be going up.
59 1/2 is the rule quoted for Traditional IRAs. 5 years is the rule for Roth IRAs. Don't confuse the two. This is a confusing topic to many of us because we haven't studied it well, and we have poor access to information to learn from. Once 5 years have elapsed in a Roth IRA, you can take out ANY amount of money for ANY reason at ANY time and current tax law does not call this a taxable event. I want to emphasize CURRENT tax law. I and many others believe that when the mass of Boomers begins to retire in about 10 years and the Social Security Trust fund begins to run ever larger deficits, Congress will look at the distributions from Roth IRAs in a new light, and may well declare them to be taxable, at the very least for the amount of earnings (not capital) that are being distributed.
The 59 1./2 figure makes an assumption that is NOT always true. Penalty free withdrawals are permitted after age 59 1/2. The assumption is that you are still working, and that the withdrawal is because (you are paying off your mortgage a few years earlier, you are taking a once in a lifetime vacation trip, you want to pay for grandkid's braces, education, etc). This assumption models a ONE time event for needing the money and places a boundary at age 59 1/2 for penalty tax to be owed on the transaction.
In a different situation, where you have successively rolled your 401(k)s into one or more Traditional IRA accounts over the years. and the value of the IRA(s) is now well over $1M, you can 'retire' at ANY AGE, and take penalty free withdrawals from your IRA(s) as your primary source of income, so long as the withdrawals are substantially equal, continue for at least 5 years or until you reach age 59 1/2 (whichever is LONGER), and conform to the schedule shown in IRS Publication 590.
Robert |
