Page 87 - The Informed Fed--Hearn Wealth Management

but not always and not without certain stipulations (i.e., tax free for
principal withdrawal

free withdrawals on the growth portion above principal). An advantage
of the Roth IRA over a traditional IRA is that there are fewer withdrawal
restrictions and requirements. Transactions inside an account (including

capital gains, dividends, and interest) do not incur a current tax liability.
Advantages:

Direct contributions to a Roth IRA may be withdrawn tax free
at any time.

Roll over, converted (before age 59½) contributions held in a
Roth IRA may be withdrawn tax and penalty free after the

Earnings may be withdrawn tax and penalty free after the
seasoning period if the condition of age 59½ (or other qualifying

condition) is also met.
This differs from a traditional IRA where all withdrawals are taxed

as Ordinary Income, and a penalty applies for withdrawals before age
59½. In contrast, capital gains on stocks or other securities held in a
regular taxable account for at least a year would be taxed at the lower

long-term capital gain rate, which ranges between 0% and 20%
depending upon household income. This potentially higher tax rate for

withdrawals of capital gains from a traditional IRA is a quid pro quo for
the deduction taken against ordinary income when putting money into
the IRA.

If there is money in the Roth IRA due to conversion from a
traditional IRA, the Roth IRA owner may withdraw up to the total of

(currently five years) has passed on the converted funds. Up to a lifetime
maximum of $10,000 in earnings withdrawals are considered qualified
(tax-free) if the money is used to acquire a principal residence for a first-

time buyer. This house must be acquired by the Roth IRA owner, their
spouse, or their lineal ancestors and descendants. The owner or qualified

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