Page 92 - The Informed Fed--Hearn Wealth Management

Contributions to both a Roth IRA and a traditional IRA are limited
to the total amount allowed for either ($6,000 for tax year 2020, $7,000
if over 50 years of age). Generally, the contribution cannot exceed your

earned income for the year in question. The one exception is for a

or no earned income provided the other spouse has sufficient earned
income and the spouses file a joint tax return.

The principal of direct contributions may be withdrawn at any time

without tax or penalty. Eligible (tax- and penalty-free) distributions of
earnings must fulfill two requirements. First, the seasoning period of five
years must have elapsed; and secondly, a justification must exist such as

retirement or disability. The simplest justification is reaching 59½ years
of age, at which point qualified withdrawals may be made in any amount

can provide justification for limited qualified withdrawals. Finally,
although one can take distributions from a Roth IRA under the

Substantially Equal Periodic Payments (SEPP) rule without paying a 10%
penalty, any interest earned in the IRA will be subject to tax, a substantial

penalty which forfeits the primary tax benefits of the Roth IRA.

Transfers of Roth IRAs between spouses when one spouse dies--just
like other IRAs--are tax-free, and the spousal beneficiary is free to make

contributions and otherwise control the account. For estate tax

under the taxable inheritance minimum, no estate tax needs to be paid.

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