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Hmm - great idea - I don't have a Roth account. Would I be able to fund a Roth account from my trading income and then trade the Roth account to withdraw taxfree after 59.5? Also is there an age limit for contributing to a Roth account? TIA
The only other caveat I would mention is that under the ordering rules Roth conversions from a traditional IRA come out after contributions and all though they are tax free (tax was paid on conversion) those dollars are still subject to 10% early withdrawal penalty before 59 1/2.
I am not a tax expert, so take this with a grain of salt. I am just starting out trading a Roth IRA.
But the short answer is, YES. You can establish a Roth IRA with a company that specializes in self-directed IRAs. For 2014 you can contribute up to $5500 ($6500 if you're 50˝ or older) as long as you have not contributed to any other retirement account during the year. Once the IRA is established, the company will transfer the amount you specify to your broker. This money must be in a separate account, as any profit generated must be independently connected to the IRA funds. Those profits are tax free as long as they are not received as a distribution before you are 59˝.
You are allowed to withdraw any money you contribute to the fund at any time. Earnings withdrawn before you turn 59˝ are subject to tax and, depending on the reason, possibly also a penalty.
As for an age limit, since the money is tax free I don't believe there is an age limit for contributions. With a traditional IRA, once you turn 70˝ you must take a yearly distribution based on your age and the total value of the fund. With a Roth IRA the money can stay there as long as you want. I suppose you can also continue contributing as long as you want. But I will ask my fund manager about that point.
Ideally, of course, you could make contributions now for 2014 and in January for 2015, and with proper money management that should be enough to trade with indefinitely!
Since both of my IRAs, the one I have just opened and my "retirement" IRA, are Roths, that isn't an issue for me.
But for those for whom it might be, does that also apply to contributions made to the traditional IRA? I would think that since the taxes had been paid on conversion, any and all contributions would be treated equally under the rules of a Roth.
The rule is to prevent someone under 59 1/2 from using a conversion to avoid the 10% penalty. Let's say you had a traditional IRA and you needed $5000 but were not yet 59 1/2. You convert the amount you need to a Roth and pay the tax on the amount converted and then withdraw it from the Roth. It is still subject to 10% penalty.
Whereas if you made a $5000 contribution to a Roth and then withdraw it there is no tax or penalty.
Many Roth IRAs were funded by traditional IRA conversions and those dollars must be tracked separately from actual Roth contributions under the ordering rules.
If all of your Roth account is contributions and earnings then it would not apply.
Depends on if you qualify as a trader under IRS rules. If you do then your trading activity is reported on Schedule C and net income from self-employment is considered earned income. Also, if you trade under an entity such as a corp, s-corp, or LLC and pay yourself a salary, the salary reported on form W-2 would be earned income.
The Patient Protection and Affordable Care Act (also known as Obamacare) enacted in 2012 has taken several years to implement and phase in. But now that the Obamacare 2014 individual health insurance mandate is in effect, many taxpayers will face confusion over tax penalties, exemptions, premium tax credits, claw backs of subsidies (advanced credits) and extra tax-preparation fees to comply with Obamacare on 2014 tax filings. In our below content, we clarify the details of the mandate to avoid confusion. 2014 is the second year for the Obamacare Net Investment Income Tax (NIT) and we show you some strategies to reduce or avoid NIT. Here are a few things you’ll learn in our Oct. 30 blog Obamacare ushers in several new tax forms for 2014 and Nov. 12 Webinar.
Three scenarios for dealing with the Obamacare mandate on 2014 tax returns.
How to handle the five new Obamacare tax forms to your advantage.
When to enroll on an exchange for 2015 coverage and have an opportunity for a premium tax credit.
Tips for upper-income traders to reduce or avoid Net Investment Income Tax.
No matter of your tax bracket, high or low, you need to take charge of your Obamacare tax matters today. If you have upper income AGI and unearned income from investments, get ready to pay the 3.8% net investment tax.