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Roth IRA Taxation In 2013

How and when is a Roth IRA taxed?  This is one of the frequently asked questions of the 2013 tax season.   Many are wondering if the “Fiscal Cliff Tax Fix” had any effect on Roth IRAs.  Here is a  Roth IRA Taxation Chart to help you understand how a Roth IRA is taxed and how it avoids income taxes.

Due to the continuing low interest/yield environment we find yourselves in cutting edge Retirement Income Planners are recommending their clients purchase  a Roth fixed index annuity with one of the new generation lifetime income riders attached.  The idea is to hold the annuity for 5 years or until age 59 1/2 whichever is longer then start the guaranteed tax free lifetime withdrawal.  During the holding period the annuity owner earns a guaranteed income base roll-up rate, typically 5-7%.

By starting the Roth lifetime income payments early in retirement or even before retirement they would likely receive all their Roth funds plus interest in about 15 years and then they would continue receiving “company money” for the rest of their lives.   Some of these plans have cost of living increases built in so the potential for a large sum of tax free income is certainly available.

In many cases it is not wise to leave your Roth Funds – just “sit” there.

For additional questions or help contact Tim Barton ChFC

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Or contact me privately here: Tim Barton Chartered Financial Consultant