As you have probably heard, in order to take tax-free distributions from your Roth IRA, you must reach two milestones:

1. Be over the age of 59 1/2
2. Have had one Roth IRA open for five years or more

But how do you really navigate these two important rules? We’ll give you an example.

Let’s say you opened your first Roth IRA on April 10, 2007 at the age of 60. The clock for income-tax-free distributions will start on January 1, 2007; the year you first established a Roth IRA.  This date will apply to all future Roth IRA contributions and conversions in all Roth accounts that you have.

Since you are already over the age of 59 ½, you must wait until 2012 (2007 + 5 = 2012) until you can take earnings out of the account income-tax-free.

That bears repeating: you must wait five years until you can take EARNINGS out of the account income tax free if you are over the age of 59 1/2.

What does that mean? You can take tax-free distributions from the account before 2012.  The first money out of a Roth IRA is:

• contributions; then when they are exhausted:
• conversions are distributed; and when they are exhausted, then:
• earnings are distributed

Since income tax was already paid on both the contributions and the converted amounts when they go into the Roth IRA, they can be distributed income tax free at any time, even before the five-year holding period is up.

The final lesson here is that you would benefit greatly to keep close track of what amount in your Roth IRA is from annual contributions, what amount is from conversions, and what amount is from earnings. As long as you keep track of those, you will know exactly how much you can distribute from your Roth IRA tax free before your five year waiting period. And then, once that milestone is up, you no longer need to keep such close tabs!

Please note: this is for informational purposes only and should not be construed as tax advice. Please consult a tax advisor.

Memorial Day is the day we honor all soldiers from all wars fought in defense of our freedom.

Traditionally, the president or vice president places a wreath on the Tomb of the Unknowns in Arlington National Cemetery. Other ceremonies are held at parades and cemeteries nationwide.

At the Tomb of the Unknowns we extend this honor every day, 365 days a year, 24 hours a day.

The Arlington National Cemetery website describes the training, tradition and dedication of the soldiers on duty at this most sacred site. As you mark this day, gather your family and friends, read this, and remember.

Have a wonderful holiday, from all of us here at Richmond Brothers.

You probably already know the reasons that many people find Roth IRAs to be so desirable (all withdrawals are tax free after five years and after age 59 1/2 AND they don’t have any of those pesky required minimum distributions.

BUT- did you also know…

When the 2010 Tax Act was passed and the new $5 million exemption from estate tax came into effect, Roth IRAs created an even greater opportunity to transfer wealth to the next generation. Now, a married couple has the ability to pass a Roth IRA to their children worth up to $10 million ($5 million from each spouse).

$10 million income and federal estate tax FREE!

If you’d like to discuss this further or just your situation in general, please feel free to contact us at questions@richmondbrothers.com.

Please note: this is for informational purposes only and should not be construed as tax advice. Please consult a tax advisor.

Dave & Matt with Ed Slott

Dave Richmond, Chairman & Chief Investment Officer, and Matt Curfman, Senior Vice President of Investment Services, attended a conference last weekend with Ed Slott’s Master Elite IRA Group(tm).

Dave & Matt attend these workshops twice a year for continual education on the complex world of IRAs. In the latest session, they received updates from Ed Slott himself and also received additional instruction from Seymour Goldberg, CPA, MBA, JD of Goldberg & Goldberg, P.C. as well as Norm Trainor, President & CEO of The Convenant Group. Topics covered included beneficiary forms, lump sum distribution tax breaks, charitable donations, stretch distributions and legal issues involving IRAs, to name a few. Dave and Matt look forward to continuing to help clients and prospective clients with these and other issues involving IRAs with their updated knowledge.

Dave and Matt will be sharing some tips and ideas they learned in future blog posts. Keep checking back for some tips to help educate yourself, too.

“A mother is the truest friend we have, when trials heavy and sudden, fall upon us; when adversity takes the place of prosperity; when friends who rejoice with us in our sunshine desert us; when trouble thickens around us, still will she cling to us, and endeavor by her kind precepts and counsels to dissipate the clouds of darkness, and cause peace to return to our hearts.” – Washington Irving

This Mother’s Day, we want to honor all of those mothers, stepmothers, aunts, mentors or any other women who have been a rock for others to lean on during the good and bad times.

Thank you to all of the strong women we know and Happy Mother’s Day!

Richmond Brothers’ team is again trading in their business attire for more casual styles. For a set charitable donation, employees have the option of “dressing down” during the months of May through September. Richmond Brothers strives to make an impact at all levels with local, nationwide, and international charities. Charities that will benefit this year include the Lingap Children’s Foundation, American Cancer Society and the Food Bank of South Central Michigan Backpack Program. For more information about these programs, please visit their websites.