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Retirement Products

Roth IRA

Lord Abbett makes it easy to open a Roth IRA. As long as your income qualifies, you can take advantage regardless of whether you participate in a qualified plan.

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What is a Roth IRA?

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least age 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

How does it work?

You may contribute up to $5,500 in 2014. If you or your spouse is age 50 or older, you can also make a $1,000 catch-up contribution. Contributions must be made by the tax-filing deadline. This is usually April 15 of the year following the year for which the contribution was designated.

With a Roth IRA, contributions are not tax deductible1.  However, a tax credit is available if you income qualify called a "saver's credit." All the account earnings are potentially tax-free if you are over age 59½ and the account has been established for at least five years when a withdrawal is made. In addition, unlike a traditional IRA (read about Traditional IRAs), as long as you continue to have earned income, there is no rule against making contributions to Roth IRAs after turning age 70½. There is also no requirement that you begin making minimum withdrawals at any age.

Who should consider a Roth IRA?

  • If you income qualify and you do not need or significantly benefit from receiving a current tax deduction on the contribution and/or receiving tax-free income from your IRA.

  • If you believe future tax rates will be higher than today's tax rates, so that dollars coming out, from a tax perspective, are worth more than dollars being contributed.

  • If you are contemplating passing your Roth account along to the next generation, providing a tax-free legacy. This tax-efficient transfer is made easier, as the Roth IRA does require you to take withdrawals while you are alive.  If your spouse inherits your Roth IRA he/she also does not need to take withdrawals while still alive. 

How does a Lord Abbett Roth IRA benefit you?

A Roth IRA offers several tax benefits, including:

  • Earnings are federal income tax-free if withdrawn after age 59½ and if the account has been established for at least five tax years.

  • Beneficiary designations can be structured as a Stretch IRA to allow income tax-free payouts to extend over many years.

  • A traditional IRA may be converted to a Roth IRA, regardless of your adjusted gross income (AGI).2 Visit our Roth Conversion Resource Center for more details.

  • You can diversify income (taxable and tax free) in retirement.

  • Roth distributions are not considered part of AGI2 and could help create a scenario where not only do you have tax-free Roth income in retirement, but Social Security payments could also be tax-free.

  • Tax-efficient distributions can be generated prior to age 59½ that can be used to supplement income or generate early retirement income. (See Roth IRA distributions.)

  • Establishing a Roth IRA starts the five-year clock on future Roth distributions from a qualified plan.

1 Adjusted Gross Income includes wages, interest, capital gains, income from retirement accounts and alimony paid to the taxpayer adjusted downward by specific deductions (including contributions to deductible retirement accounts and alimony paid by the taxpayer); but not including standard and itemized deductions.

2 An item or expense, such as an IRA contribution, which, when subtracted from adjusted gross income, reduces the amount of income subject to tax.

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What rules determine Roth IRA eligibility? 

 Roth IRA eligibility is determined by the following rules:

  • Individuals (and their spouse) who have earned income and meet statutory earnings requirements.
  • Unlike a Traditional IRA contributions can be made for anyone, even those over age 70½.

  • Individuals who have a distribution of a designated Roth contribution account from a qualified retirement plan (401(k), 403(b), or 457(b) governmental plan, regardless of age or employment status.

  • Individuals converting a traditional IRA, including SEP1 or SIMPLE IRAs,2  to a Roth IRA. A SIMPLE IRA needs to have been in existence for two years from the date of the first contribution, unless the individual is over age 59½, to convert the account. (See below for more information on converting a traditional IRA to a Lord Abbett Roth IRA.)  Direct rollovers from qualified plans may also be converted to Roth IRAs however, there may be fees involved.

1 A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee's SEP-IRA.

2 A SIMPLE IRA plan is an IRA-based plan that gives small business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or non-elective contributions. All contributions are made directly to an Individual Retirement Account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

How do the statutory earnings requirements affect Roth IRA eligibility? 

For 2013, couples filing jointly are eligible to make the full Roth contribution ($5,500) if the couple's joint income is $178,000 or less. A partial Roth contribution is allowed if the couple's joint income does not exceed $188,000. These income limits increase to $181,000 and $191,000, respectively, regarding any contribution made for calendar year 2014.

Single individuals can make full Roth IRA contributions when income is $112,000 or less in 2013 ($114,000 or less in 2014). A partial Roth contribution is allowed if the income is above $112,000, but does not exceed $127,000. These income limits increase to $114,000 and $129,000, respectively, regarding any contribution made for calendar year 2014. 

The income eligibility rules are summarized in the following table:

If taxable compensation and filing status is...

And modified adjusted gross income (AGI)3 is...

Then...

Married filing jointly or qualifying widow(er)

Less than $178,000 ($181,000 in 2014)

Contribution may equal: $5,000 and if age 50 or older $6,000

At least $178,000, but less than $188,000 ($181,000 and $191,000 in 2014)

The contribution amount is proportionately reduced

$188,000 or more ($191,000 in 2014)

Contribution may equal: $5,000 and if age 50 or older $6,000

Single, head of household, or married filing separately and spouses did not live with each other at any time during the year

Less than $112,000 ($114,000 in 2014)

Contribution may equal: $5,000 and if age 50 or older $6,000

At least $112,000 but less than $127,000 ($114,000 to $129,000 in 2014)

The contribution amount is proportionately reduced

$127,000 or more ($129,000 in 2014)

No contribution to a Roth IRA is allowed

 

Consider investing in a Lord Abbett Roth IRA if:

  • Your earned income is below the Roth IRA's maximum income limit.
  • You have an asset transfer rollover from a previous employer's Roth retirement plan account.
  • It is anticipated you will be in a higher tax bracket during your retirement years. 

1 Adjusted Gross Income includes wages, interest, capital gains, income from retirement accounts and alimony paid to the taxpayer adjusted downward by specific deductions (including contributions to deductible retirement accounts and alimony paid by the taxpayer); but not including standard and itemized deductions.

How do I convert my existing traditional IRA or qualified plan distribution to a Roth IRA?

Beginning in 2010, all traditional IRA account owners regardless of age, including those with SEP1 and SIMPLE IRA2 accounts, have the option to convert their traditional IRA and have it become a Roth IRA. Prior to 2010, individuals and couples had to have adjusted gross income below $100,000 to convert their traditional IRAs to a Roth.

Converting means that all or a portion of your traditional IRA becomes taxable, and the account is reclassified as a Roth IRA.  This can also be accomplished if the funds are transferred directly from a qualified retirement plan, such as a 401(k) plan. (See "Rollovers.")  If the account is held until age 59½ and at least five years, all the Roth IRA proceeds, including the earnings, will be income tax free. 

Consider a Roth conversion if:

  • You would like to have the opportunity to have tax-free retirement income.
  • You believe future tax rates will be greater than today's.
  • The taxes due can be paid without using converted IRA assets as a 10% penalty may apply to the portion used to pay the taxes.
  • You believe you could benefit from many years of tax deferral.
  • There is a desire to leave a tax-free legacy to a spouse or non-spouse beneficiary.

1 A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP-IRA.

2 A SIMPLE IRA plan is an IRA-based plan that gives small business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or non-elective contributions. All contributions are made directly to an Individual Retirement Account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.


This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

How much can I contribute to a Roth IRA?

If you are under age 50, you may contribute up to $5,500 per year.

Are catch-up contributions available?

If you are age 50 or older at any time during the calendar year, you will be allowed to invest an additional $1,000, and there is no upper age limit.

Can I contribute to both a Roth IRA and a Traditional IRA?

Yes, assuming that you income qualify (see Roth IRA Eligibility) to make a Roth IRA contribution you can contribute to both.  However, please note you have one combined IRA contribution limit of $5,500 if under age 50, and $6,500 if over age 50.   Contributions may or may not be tax deductible1 when made to a traditional IRA. (See our table under "IRA Eligibility," which outlines traditional IRA contribution tax-deduction parameters.)

Many taxpayers earn income above federally imposed thresholds and cannot make contributory Roth IRA contributions.  Therefore, the only way that a Roth IRA is possible for these folks is by converting a traditional IRA.  Accumulating assets in an IRA positions you to potentially convert your Lord Abbett IRA account to a Roth IRA. (See Roth Conversion Resource Center) This means exchanging the traditional IRA for a Roth IRA, paying taxes on all pretax dollars converted. 

When can I contribute to my Lord Abbett Roth IRA?

You can make your Roth IRA contributions as soon as your Lord Abbett Roth IRA account is established.  (Click here to connect with Lord Abbett's writeable Roth IRA application.) Contributions may be made at any time during the calendar year or by the tax filing due date for that year, not including extensions. For most people, this means contributions must be made by April 15.

What if my Roth IRA contribution exceed the limits? 

If not withdrawn by the tax filing due date (April 15), a 6% excise tax may apply to contributions in excess of the permitted amount.

If you file for an extension by the due date of your federal tax return, you receive a six month extension to correct an excess contribution.

Why would I want to contribute to a Roth IRA if the contribution is not deductible?

Roth IRA contribution earnings grow tax deferred until withdrawn. If you are age 59½ or older and the account has been in existence for five tax years, all withdrawals are tax free. It may be to your advantage to accumulate tax-sheltered2 funds allowing the full amount invested and earnings to potentially compound on a tax-deferred 3 and potentially tax-free basis.

Many taxpayers earn income above federally imposed thresholds and cannot make contributory Roth IRA contributions.  (See our table on the Roth IRA Eligibility page.)  Therefore, the only way that a Roth IRA is possible for these folks is by converting a traditional IRA.  Accumulating assets in an IRA positions you to potentially convert your Lord Abbett IRA account to a Roth IRA. (See "Roth Conversion Resource Center") This means exchanging the traditional IRA for a Roth IRA, paying taxes on all pretax dollars converted. 

However, please understand that the rules do not allow you to convert nondeductible dollars only. What's taxable and what's not is based on a formula (unless it's a full conversion) that multiplies the dollars converted by the nondeductible dollars over the value of all IRAs, including the amount converted, at the end of the year in which the conversion occurs.

Here's an example:

Aftertax dollars in all non-Roth IRA accounts, including rollovers, SEPs,4 and SIMPLE IRAs5 is $10,000, and the amount of Roth IRA conversion equals $10,000.The value, including the converted amount, of all IRAs at the end of the year in which the Roth conversion occurs equals $100,000.

$10,000 (the amount converted) multiplied by ($10,000, aftertax dollars, ÷$100,000, the value of the traditional IRA at year-end, including converted amount) = $1,000. This is the nontaxable portion and $9,000 is subject to taxation without penalty.

You now would have a Roth IRA account equaling $10,000 that when withdrawn after age 59½ and five years of existence will render all dollars, including earnings, income tax-free in that Roth account.

1 An investment, such as an Individual Retirement Account (IRA), whose earnings are either tax-deferred or tax-exempt.

2 Income whose taxes can be postponed until a later date; examples include IRAs and 401(k) plan earnings.

3 A Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small-business owners.  When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee's SEP-IRA.

4 A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement.  Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or non-elective contributions.  All contributions are made directly to a SIMPLE Individual Retirement Account.


This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What types of Roth IRA distributions are available? 

There are basically six Roth IRA distribution categories:

  • Normal
  • Premature without an exception
  • Premature with an exception
  • Return of basis
  • Distributions due to death of account owner
  • The 60-day withdrawal and subsequent rollover (return)

What is a normal Roth IRA distribution? 

 A normal Roth IRA distribution occurs after the actual date you attain age 59½ and your Roth account has been in effect for five calendar years (measured differently than age 59½). All distributions under this scenario are tax free.

For example, William was born on February 15, 1954. He will be 59½ on August 15, 2013. A distribution before that date, including earnings, would be called premature (see below). The Roth account, in this example, also had to have been in effect since 2008. William could have opened an account as late as April 15, 2009, and make a timely Roth IRA contribution for the 2008 calendar year; that time period then would be considered five years.

What is a premature Roth IRA distribution without an exception? 

A premature Roth IRA distribution, without an exception, occurs when you remove earnings before age 59½, whether or not the account has been opened for five years and none of the statutory exceptions apply (see next Q&A), so that a 10% penalty is assessed against any earnings withdrawn (no penalty if you are over age 59½), in addition to any taxes due on those earnings. If the account has been in existence for five years and you are age 59 ½ or older, all earnings are tax free.

Roth IRA account values that were converted from a traditional IRA (amounts that were taxable at the time of the conversion) will have the 10% penalty reattach if they are withdrawn before the earlier of five years or age 59½. Five years includes the year the traditional IRA account was converted to a Roth IRA. For example, a traditional IRA account converted to a Roth IRA on December 10, 2012, will have its five-year holding period expire at the end of 2016. The 10% penalty does not otherwise apply to taxable amounts converted from a traditional IRA to a Roth IRA at the time of the conversion. (See Roth Conversion Resource Center).

What is a premature Roth IRA distribution with an exception? 

 A premature Roth IRA distribution with an exception occurs (but with no 10% penalty on the earnings or amounts that were taxable when a Roth conversion occurred) when any taxable portion of the Roth IRA is withdrawn under any of the following circumstances:

Practice Tip 

Unless the participant is using Roth dollars that were converted from a traditional IRA, it is unlikely that any taxable dollars would be withdrawn under this option, as the ordering rules on Roth IRA withdrawals is basis first (the money the individual contributed), conversion dollars, and then earnings.

Practice Tip 

The $10,000 withdrawal for first-time homebuyers from a Roth IRA is a tax-free distribution if the account has been in existence for five years. In addition, the participant can withdraw his or her non-taxable basis at any  time and for any reason, so the $10,000 limit only comes into play when earnings (dollars above basis) are being withdrawn or the withdrawal consists of dollars that were taxable when converted to a Roth IRA from a traditional IRA and five years have not yet passed.

  • Substantially, equal periodic payments are taken based on your life expectancy of the recipient. (This is often the 72(t) distribution option because of the section of the Internal Revenue Code, where the penalty and exception reside.) Payments must be made for the greater of five years or the attainment of age 59½ or the 10% penalty reattaches (retroactively) to any taxable portion of all distributions made before age 59½. Unless you are using Roth dollars that were converted from a traditional IRA , it is unlikely that any taxable dollars would be withdrawn under this option as the ordering rules on Roth IRA withdrawals is basis first (the money you contributed), conversion dollars, and then earnings.
  • You are disabled.
  • You are the beneficiary of a deceased Roth IRA owner.
  • You use distributions to pay qualified higher education expenses (e.g., tuition, fees, books, supplies, etc.) for yourself or a family member such as a son or daughter.
  • You are paying health insurance premiums after you have received unemployment compensation for more than 12 weeks.
  • You have significant, unreimbursed medical expenses (greater than 10% of AGI1) for that year. Individuals 65 and over can use the lower 7.5% threshold through 2016.
  • You used the distribution to buy, build, or rebuild a first home. (There is a lifetime limit of $10,000 for distributions for first-time homebuyers, so if you wanted to assist two children equally to buy a home, each child could receive $5,000. If your spouse also had an IRA, he/she could also do the same for each child in this example.)   The $10,000 withdrawal for first-time homebuyers from a Roth IRA is a tax-free distribution if the account has been in existence for five years. In addition, you can withdraw your non-taxable basis at any time and for any reason, so the $10,000 limit only comes into play when earnings (dollars above basis) are being withdrawn or the withdrawal consists of dollars that were taxable when converted to a Roth IRA from a traditional IRA and five years have not yet passed.
  • Your distribution is due to an IRS levy to pay overdue taxes.
1 Adjusted Gross Income includes wages, interest, capital gains, income from retirement accounts and alimony paid to the taxpayer adjusted downward by specific deductions (including contributions to deductible retirement accounts and alimony paid by the taxpayer); but not including standard and itemized deductions.

What is a required distribution from a Roth IRA? 

Unlike a traditional IRA's required minimum distributions (RMDs), these do not apply to Roth IRA accounts until the account is inherited by a non-spouse beneficiary. (See "Death Benefits" below.) If a spouse inherits the account, there is no RMD necessary.

What is return of basis? 

Contributory Roth IRAs are funded with aftertax dollars called "basis." When a withdrawal is made from a Roth IRA, it is always basis first. If you contributed $25,000 to a Roth IRA that was worth $50,000, the first $25,000 withdrawn would be considered return of basis and not subject to tax. This withdrawal may occur at any time. 

Similarly, all amounts rolled over to a Roth IRA from a designated Roth 401(k) or Roth 403(b) account after you were a participant in the Roth 401(k) or Roth 403(b) for five years and age 59½ are considered basis, even though the Roth IRA may have been recently opened or opened to accommodate the rollover. Once the Roth IRA account has been established for five years, then all earnings on the amounts rolled over are tax free. If the Roth IRA account already existed for five years at the time of the rollover, then all earnings on the amounts rolled over are tax free from the start. 

Amounts rolled over from a designated Roth 401(k) or Roth 403(b) account before you were a participant in the designated Roth 401(k) or Roth 403(b) for five years and age 59½ are considered basis to the extent you contributed aftertax dollars to the designated Roth 401(k) or Roth 403(b) account. You need to wait until you are age 59½ and the Roth IRA account receiving the funds has been in existence for five years for all the earnings from the designated Roth 401(k) account or designated 403(b) account to be tax free. If the Roth IRA account already existed for five years at the time of the rollover, then all earnings imbedded in the amounts rolled over from the designated Roth 401(k) account or designated Roth 403(b) account are tax free once age 59½ is attained.

What are death benefits from a Roth IRA? 

When a Roth IRA account owner dies, generally an inherited IRA (called a "decedent" or "beneficial Roth IRA") is created. However, the treatment of the inherited Roth IRA account varies depending on who is the beneficiary. Roth IRAs that are inherited from a spouse are treated differently than Roth IRAs that are inherited from someone other than a spouse.

Inherited from spouse:

  • Treat Roth IRA as your own by designating oneself as the account owner.
  • Treat Roth IRA as your own by transferring it to one's own Roth IRA.
  • Withdraw funds as needed without penalty. Any earnings withdrawn are tax free if the account has been established for at least five years; otherwise, earnings withdrawn are treated as ordinary income. No required minimum distributions are triggered. This option is advantageous when the inheriting spouse is under age 59½ and may be in need of income.

If the Roth IRA is inherited from someone other than a spouse, the options are more limited. The beneficiary may leave the account where it is or make a trustee-to-trustee transfer (to change investment vehicle from one Roth IRA trustee [custodian] directly to another) as long as the Roth IRA is established in the name of the deceased owner for the benefit of the beneficiary. For example the account might be titled as follows: "Joe Doe, deceased, Roth IRA, F/B/O Jane Doe, beneficiary."

If you are a non-spouse beneficiary, you have the option to:

  • Take a one time distribution;
  • Take payments equaling the full distribution by the end of the fifth calendar year that includes the anniversary of death; or
  • S-T-R-E-T-C-H the payments over your life expectancy, which is determined by tables, found in IRS regulations. After you die, the Roth IRA can be passed on to successor beneficiaries, but your original life expectancy continues to be utilized to calculate the minimum payout. (See "Stretch IRA" below.)

What is a Stretch IRA? 

A Stretch IRA is for investors who will not need their IRA money during their own retirement. While the law does not restrict which taxpayers can select the Stretch IRA option, the stretch strategy is appropriate only for those individuals who simply need and plan to receive the required minimum withdrawals, taken at the latest time the law allows, without penalty, age 70½.

A Stretch IRA (applies to Roth and traditional IRAs) can be described as a distribution strategy for an individual IRA's beneficiary. The objective upon the account owner's death is to S-T-R-E-T-C-H the beneficiary's payments over a lengthy period of time in order to obtain favorable economic and tax results. Payment projections over 30 years or more are not uncommon. The beneficiary is usually a child or a grandchild of the account owner, but may be anyone the owner chooses. There can be no guarantee, however, that the second- and third-generation beneficiaries will continue the stretch strategy and may elect to liquidate the account at any time.

Important Tip 

Withdrawals from Roth IRAs are basis first (see above). If the minimum amount under the Stretch Roth IRA option is withdrawn each year, including any years before the account has been in existence for at least five years, it is unlikely that any withdrawals will be taxable.

Someone may want to S-T-R-E-T-C-H their distributions because money in a Roth IRA grows tax-deferred2 and potentially tax free. The beneficiary effectively inherits a tax-deferred,2 potentially tax free, savings account. By spreading the payments over a significant number of years tax deferred, potentially tax free, compounding continues, and if the account has been in existence for five years when a withdrawal is made, including the time the original owner held the account, all payments are tax free.

The regulations prohibit death distributions to extend beyond the period of the initial non-spouse beneficiary's life expectancy, not recalculated as they age.

Example: Martha dies and her daughter Angela is the beneficiary of her Roth IRA. Angela is 50 years old and her life expectancy is 34 years. In other words, Angela would need to withdraw 1/34, 1/33, 1/32, etc., of the account beginning on or before December 31st of the year following Martha's death.

If Angela dies five years later at age 55 and Angela's beneficiary is her son Bob, Bob can continue taking distributions based on Angela's reduced life expectancy (34-5= 29). If Bob were to pass away before the 29 years were over, he could pass on the Roth IRA to his beneficiary until the original life expectancy of Angela goes down to one, when the remaining balance would be fully distributed.

Unless restricted by the terms of the beneficiary designation, Angela, and subsequently Bob in this example, could accelerate their payments (take more than the minimum) which could lower the ultimate amount and length of the distributions. In addition, if this withdrawal period was less than five years from the time the Roth IRA was established, including the time the original account owner held the account, then any earnings accumulated on the account could be taxable if basis was exhausted.

If Martha did not name a beneficiary, the Roth IRA assets may have passed on to her estate with accelerated distributions being required. Some custodial account agreements may establish a beneficiary ordering rule, such as spouse, children, parents, etc., which could determine the actual beneficiary in the event the account owner did not have a named beneficiary upon death.  Lord Abbett Roth IRAs designate the estate as beneficiary if one is unnamed at the time of death.

It is also important to note that Roth IRAs cannot be transferred via your will unless the will had been named, prior to death, as the beneficiary or contingent beneficiary of the account and accepted by the custodian.

1 Income whose taxes can be postponed until a later date; examples include IRAs and 401(k) plan earnings.

Risks Involving the Stretch IRA Strategy
Withdrawals by you or beneficiaries in excess of the required minimum distribution (RMD) will exhaust the account at a faster pace, reducing or eliminating the effectiveness of the stretch strategy. Distributions greater than the RMD could subject the payments to higher federal and possibly state income taxes. When investing assets, which will be used to stretch IRA payments, the investor must be cognizant of any front-end or back-end sales charges that can reduce the assets available. During an extended period of declining investment returns, investors will experience income fluctuations that may cause additional withdrawals to be made that will exhaust the account at a more rapid rate. There can be no guarantee that a Stretch IRA strategy will be advantageous to your specific situation, and many of its benefits are based on current tax laws, which are subject to change. If these laws change, an investor's ability to maintain estimated distributions may be affected. Lengthy distribution periods, much like those involved in a Stretch IRA, expose an investor to significant market risk.

What is the 60-day withdrawal and rollover rule? 

Once in a 12-month period, measured from the date you first access your Roth IRA funds, you may withdraw an amount from each of your Roth IRAs, use it for whatever reason, and return it within 60 days as though the withdrawal never occurred.

Example: Barbara withdraws $30,000 from her Roth IRA on March 1, 2013. If she returns the $30,000, or a lesser amount, by April 30, 2013, she has had use of the money, preserved whatever basis is attached to the 2withdrawal, and avoided any taxes or penalties on any amounts exceeding her basis. She cannot make another withdrawal, with the ability to return it, until March 2, 2014.

Important Tip 

Individuals must recognize there can be significant taxes and penalties if the funds are not repaid, and larger withdrawals may be more difficult to repay.

If Barbara had another Roth IRA (or several), she could make this 60-day withdrawal from each of them, at different times, use the funds as she wishes, and return them within the 60-day period.

Withdrawing funds from one Roth IRA and repaying it to another Roth IRA connects the second Roth IRA to the first Roth IRA for purposes of the 60-day rule. If Barbara had two Roth IRAs and withdrew from one, but repaid the other on a timely basis, she would lose the ability to make a separate 60-day withdrawal/return from the second IRA until March 2, 2014, in this example.

OPEN AN IRA

  1. Complete the writable IRA Application

  2. Print and send to Lord Abbett by mail, fax, email or use our Free FedEx shipping option

  3. You’ll receive a confirmation once your IRA is established

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