Rules for liquidating an ira

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You don't have to pay state or federal income tax on the same sum of money twice, which means you can withdraw any amount, up to the total amount of your own contributions, tax- and penalty-free at any time.

Below are a few examples to show you how to apply these rules. She opens her first ever Roth and contributes ,000 and converts ,000 from a Traditional IRA to this Roth IRA.The money that you deposit into a Roth IRA grows tax deferred.You can liquidate your Roth and avoid paying taxes and penalties if your withdrawal meets certain IRS guidelines.This provision is intended to keep people under age 59 ½ from taking a regular IRA, converting it to a Roth, and then the next year taking a distribution, thereby circumventing the traditional IRA early withdrawal penalty tax.To prevent this, when you convert funds to a Roth, a 5-year clock starts and any amounts that you had to include in income at the time of the conversion that is withdrawn before the 5-year clock is up, are subject to a 10% penalty tax.

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