Roth - Qualified Distributions

Views:
 
Category: Education
     
 

Presentation Description

No description available.

Comments

Presentation Transcript

Roth 403(b)/401(k)&Roth Distributions : 

Roth 403(b)/401(k)&Roth Distributions ROTH ROTH 403b

Roth Elective Deferrals : 

Roth Elective Deferrals

Roth Elective Deferrals : 

Roth Elective Deferrals 403(b) 401(k) Roth

Roth Elective Deferrals : 

Roth Elective Deferrals 403(b) 401(k) Roth

Roth meets Tax : 

Roth meets Tax 01/01/2006

Roth meets Tax : 

Roth meets Tax 01/01/2006

Roth meets Tax : 

Roth meets Tax 01/01/2006

Roth meets Tax : 

Roth meets Tax 01/01/2006

Roth Contributions : 

Roth Contributions

Roth Contributions : 

After tax contributions Similar to tax sheltered contributions, at least for: Contribution limits In-service withdrawal restrictions Roth Contributions

Roth Growing Up : 

Roth Growing Up

Roth Growing Up : 

Roth Growing Up

Roth Growing Up : 

Roth Growing Up

Roth Accounts : 

Roth contributions Grow like all other contributions Tax Deferred Distribution of Roth contributions not taxed Roth Accounts

Roth Accounts : 

Qualified Roth Distribution Must meet two conditions: Satisfy 5 year rule; and Be a qualified purpose. Roth Accounts

Qualified Roth Distributions : 

Satisfying 5 Year Rule Roth account must be in the 403(b) / 401(k) for at least 5 years Example: 1st Roth contribution made October 15, 2010 5 Yr rule satisfied by 1-1-2015 Qualified Roth Distributions

Roth All Grown Up : 

Roth All Grown Up

Roth All Grown Up : 

Roth All Grown Up

Qualified Roth Distributions : 

Qualified Purpose Rule Participant attains 59 ½ ; Participant disabled; or Participant dies. Qualified Roth Distributions

Qualified Roth Distributions : 

Example 1 On July 1, 2008, Karen, age 58, first contributes to a Roth 403(b) account in her employer’s plan.  She leaves that employer in 2009 and transfers her Roth 403(b) account to her new employer’s plan in 2009. She makes her first contribution on January 1, 2010.  On January 1, 2013, she wants to take an in-service distribution from her Roth 403(b) account. Qualified Roth Distributions

Qualified Roth Distributions : 

Is the distribution tax-free? Yes, the distribution satisfies both conditions. It satisfies the qualified purpose rule since Karen is over age 59½, and It satisfies the five-year rule since the 5 yr clock starts on the January 1 of the calendar year in which Karen first contributed to a plan (2008).  The clock continues to tick based on the measuring date for the first contribution if the participant transfers that account to a subsequent employer’s plan. Qualified Roth Distributions

Qualified Roth Distributions : 

Example 2 On July 1, 2008, Sally, age 58, first contributes to a Roth 403(b) account in her employer’s plan.  She leaves that employer in 2009 and does NOT transfers her Roth 403(b) account to her new employer’s plan. She makes her first contribution on January 1, 2010.  On January 1, 2013, she wants to take an in-service distribution from her Roth 403(b) account. Qualified Roth Distributions

Qualified Roth Distributions : 

Is the distribution tax-free? A distribution from her current employer’s plan is NOT tax free since the distribution only satisfies one condition. Sally is over age 59½ so the qualified purpose rule is satisfied; however, The distribution does NOT satisfy the five-year rule since the measuring date for distributions for her new employer’s plan is January 1, 2010 A distribution from her prior employer’s plan is tax free since the distribution satisfies both conditions. Qualified Roth Distributions

Qualified Roth Distributions : 

Example 3 On July 1, 2008, Cindy, age 40, first contributes to a Roth 403(b) account in her employer’s plan.  She leaves that employer in 2009 and transfers her Roth 403(b) account to her new employer’s plan in 2009. Then she makes contribution for her new plan on January 1, 2010.  On January 1, 2013, she terminates with her new employer and wants to take a distribution. Qualified Roth Distributions

Qualified Roth Distributions : 

Is the distribution tax-free? No. The distribution does satisfy the five-year rule; however, it does not satisfy the qualified purpose rule since Cindy is not disabled, deceased or age 59½.  Therefore, the distribution is not qualified, and a portion of the distribution is taxable.   The taxable portion of the nonqualified Roth distribution is calculated based on total gains on investments in the Roth 403(b) account divided by the total Roth 403(b) account times the distribution amount. Qualified Roth Distributions

Roth Distributions : 

Example 4 Susan, age 60, has a total plan account balance of $50,000.  Her account balance consists of: $10,000 in an employer non-matching account, $ 5,000 in an employer matching account, $20,000 in her tax sheltered account ,and $15,000 in her Roth 403(b) account.  The Roth 403(b) account consists of $12,000 in contributions and $3,000 in investment gains.  The Roth account is 3 years old. Roth Distributions

Roth Distributions : 

Roth Distributions If Susan receives a $5,000 distribution from her Roth account, what portion of this distribution, if any, is taxable?

Roth Distributions : 

Roth Distributions If Susan receives a $5,000 distribution from her Roth account, what portion of this distribution, if any, is taxable? The distribution is not a qualified Roth distribution since Susan only satisfies the qualified purpose rule (she is over age 59½) but not the five-year rule.  The taxable portion of the Roth distribution is calculated based on the total gains on investments in the Roth account ($3,000) divided by the total Roth account ($15,000) times the distribution amount ($5,000). [ ($3,000 / $15,000) x $5,000 ] = $1,000.

The End : 

The End

authorStream Live Help