Ira rules for Distribution

The rules are different for a roth and a traditional ira when it comes to distribution/ withdrawals. Roth ira rules state that withdrawals are tax-free if the account is held for 5 years and you are age 59 ½. If under age 59 ½ and you do not meet one of the qualifying criteria set by the IRS, you will be subject to a 10% early distribution penalty.

Traditional ira rules state that your withdrawals are not tax-free. If you make a withdrawal before age 59 ½, you will taxed and subject to a 10% early distribution penalty. Your contributions are tax-deferred but not tax-free.

Conversion:

Should you convert your traditional ira to a roth? Well that all depends and that is a complicated question. You must consider a few factors when before making that decision. What is your adjusted gross income? When will you need the ira money? What tax bracket will you be in at retirement – a higher or lower tax bracket? Keep in mind that you will have to pay taxes on the conversion amount; so will you have to use the monies within the ira account to pay those taxes? Do you want to do that? Best advice, ask your tax advisor or financial planner because everyone’s situation is different.