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Investments in Roth IRA account

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  • Investments in Roth IRA account

    Can all investments & growth in Roth IRA accounts be withdrawn tax-free? Even if these include individual stocks like Amazon/FB etc. rather than index funds?

  • #2
    You are allowed to withdraw only what you put into your Roth IRA.  SO, if you put $5500 in your Roth today and buy a bunch of individual stocks, then 5 years later those stocks have grown and your account is now worth $8500, you are allowed to sell your stocks and withdraw exactly $5500, but must leave $3k in there to avoid penalty.  At least, that's my understanding of how it works.  Correct me if I'm wrong please.

    And yes, the government does not care what you invest in inside your Roth IRA (individual stocks, etfs, mutual funds, etc).

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    • #3
      I'd modify the above a little:

      https://www.thebalance.com/the-scoop-on-roth-iras-are-withdrawals-tax-free-or-not-2388706

      More here:

      https://www.irs.gov/publications/p590b/ch02.html#en_US_2016_publink1000231057

       

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      • #4
        In retirement, it's all tax-free.

        Otherwise, only the directly-contributed principal is tax-free and penalty-free. Converted amounts (like backdoor Roth) have to sit for five years (I think).

        Non-qualified early withdrawals are subject to tax on earnings and an additional penalty. There are a few circumstances in which you can withdraw without penalty, such as a home purchase or certain expenses.

        If you are under 59 1/2 you can still withdraw it tax- and penalty-free by using substantially equal periodic payments.

        This is all pretty simply outlined in IRS pub 590-B.

        Comment


        • #5




          In retirement, it’s all tax-free.

          Otherwise, only the directly-contributed principal is tax-free and penalty-free. Converted amounts (like backdoor Roth) have to sit for five years (I think).

          Non-qualified early withdrawals are subject to tax on earnings and an additional penalty. There are a few circumstances in which you can withdraw without penalty, such as a home purchase or certain expenses.

          If you are under 59 1/2 you can still withdraw it tax- and penalty-free by using substantially equal periodic payments.

          This is all pretty simply outlined in IRS pub 590-B.
          Click to expand...


          I didn't know that converted amounts (backdoor roth) had to sit for 5 years.  But, I read the link above that ENT doc posted and you're right.  I'm glad I read this thread.  Thanks

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          • #6
            The five-year period is, in my opinion, why backdoor Roth doesn't violate the IRS's "step doctrine" of achieving an "illegal" identical end by "legal" steps to circumvent "illegal" steps...because the converted money in there is not identical to directly-contributed Roth money.

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            • #7
              Thank you! I had forgotten about the penalty on "growth". My main question was about whether the type of investment (individual stocks vs. index fund) matters or not when withdrawing and looks like it doesn't.

               

              Also thanks to DMFA for including info about the 5 year waiting period for backdoor roth. Very helpful. Was not aware.

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              • #8
                Withdrawals from a Roth that was held for less than 5 years:

                Earnings will be subject to taxes, but not penalties.

                Withdrawals from a Roth that was held for more than 5 years:

                One can withdraw money without any taxes or penalties.

                 

                How the growth was achieved in the Roth usually doesn't matter.

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