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Dodge the tax bullet on ‘taxable’ Roth distributions

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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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