Page 88 - The Informed Fed--Hearn (edited 10.29.20)

relative who receives such a distribution must not have owned a home
in the previous 24 months. Contributions may be made to a Roth IRA
even if the owner participates in a qualified retirement plan such as a
401(k). (Contributions may be made to a traditional IRA in this
circumstance, but they may not be tax deductible.)
If a Roth IRA owner dies and his/her spouse becomes the sole
beneficiary of that Roth IRA while also owning a separate Roth IRA, the
spouse is permitted to combine the two Roth IRAs into a single plan
without penalty.
If the Roth IRA owner expects that the tax rate applicable to
withdrawals from a traditional IRA in retirement will be higher than the
tax rate applicable to the funds earned to make the Roth IRA
contributions before retirement, then there may be a tax advantage to
making contributions to a Roth IRA over a traditional IRA or similar
vehicle while working. There is no current tax deduction, but money
going into the Roth IRA is taxed at the taxpayer’s current marginal tax
rate and will not be taxed at the expected higher future effective tax rate
when it comes out of the Roth IRA. Assets in the Roth IRA can be
passed on to heirs.
The Roth IRA does not require distributions based on age. All other
tax-deferred retirement plans, including the related Roth TSP, require
withdrawals to begin by April 1 of the calendar year after the owner
reaches age 72. If one does not need the money and wants to leave it to
their heirs, this is a great way to accumulate tax free income. Beneficiaries
who inherited Roth IRAs are subject to the minimum distribution rules.
Roth IRAs have a higher “effective” contribution limit than
traditional IRAs. Since the nominal contribution limit is the same for the
post-tax contribution in a Roth IRA. For example, a contribution of the
2008 limit of $5,000 to a Roth IRA may be equivalent to a traditional
IRA contribution of $6,667 (assuming a 25% tax rate at both
contribution and withdrawal). In 2008, one cannot contribute $6,667 to

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