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Dodge the tax bullet on ‘taxable’ Roth distributions

by on
in Small Business Tax

All the buzz about Roth IRAs in 2010 is about the new rules for conversions. For the first time ever, you can convert a traditional IRA to a Roth, regardless of your annual income. Previously, conversions weren’t allowed for taxpayers with a modified adjusted gross income (MAGI) over $100,000.

But nothing has changed in the rules for Roth IRA distributions. Unless payouts of accumulated Roth account earnings meet the definition of “qualified distributions,” they are subject to tax.

Strategy: Minimize the tax burden when you withdraw from a Roth. Despite the common perception, the tax owed on distributions may be less than you think. In fact, some distributions are tax-free!

The exact tax treatment depends on the “ordering rules” for Roth IRA distributions.

Here’s the whole story: Unlike traditional IRAs, participants in a Roth IRA aren’t required to take required minimum distributions (RMDs) after reaching age 70½. But they can ...(register to read more)

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