Uncover the 9 Roth IRA Distribution Rules That Could Revolutionize Your Retirement Plans!

Welcome back to We're Talking Money. I'm Dustin Hocken, wealth advisor at OmniStar Financial Group. Today we're going to be talking about part two of the Roth IRA. So we went through a bunch of information in part one. There's so much information on a Roth IRA that we decided to split it into two videos, part one, part two.

Part two, in my opinion, is a little more complex, so be sure to stay tuned to learn more about those more complex features of the Roth IRA. And this is definitely information that you're going to want to know if you're thinking about starting a Roth IRA or you currently have a Roth IRA. We'll be right back.

Now let's talk about some distribution rules. So this is really where the IRA can make a lot of difference, not only for retirement but pre-retirement. It can be a great mid to long term tool. That's because any money that you put into the Roth IRA, your contribution, you can pull out at any point in time for any reason, tax-free, penalty free, because it's just a return of contribution. This doesn't include the earnings. We'll need some special exemptions for that, but I'll dive into that and more on episode 2 of Roth IRAs Explained.

So what are these special distribution rules? So there's actually nine distribution rules where you can pull out and you won't have to pay a penalty and potentially no tax. Now, they can be very helpful in a time of need, and at some point you'll likely take advantage of maybe one or more of these. Now keep in mind, this isn't talking about the earnings on converted assets, because those follow a different rule. I don't want to make this video super confusing, so if you do have questions about earnings on converted assets, please comment and then we'll do our best to answer your specific question.

So here are the nine special distribution rules. Number one, age 59 and a half. So once you hit age 59 and a half and you pull money out of your Roth IRA, that 10 penalty is waived, even on converted assets within the first five years. Second, death. Third, disability.

Fourth, first time home purchase. This one I want to spend a little time on because it's really neat. So you can pull up to ten thousand dollars out of your Roth IRA for a first time home purchase. Now, what's really cool about that is you can touch your principal and you can touch earnings, no taxes, no penalty. Very nice exemption. But what's neat about it is the definition of a first time home purchase. So what a first time home purchase, the definition says, is that you just haven't owned a primary residence in the last two years.

So that means that you could use a ten thousand dollar distribution from your Roth IRA to purchase your home. Say you're married, well, now in two years or whenever your spouse wants, they can purchase a home and use ten thousand dollars out of their Roth IRA tax-free. If you want to build out your real estate portfolio, this could be a good option. Not saying that you should use your Roth IRA, just saying it is available. Everyone's situation is different, so it might not make sense. You'd want to run this through the financial planning software that you use to make sure, but just know it is an option.

Number five, unreimbursed medical expenses. If you have medical expenses of over seven and a half percent of your adjusted gross income, you can use your Roth IRA to pay off those expenses tax-free, penalty free. Medical insurance premiums, that's number six. So while you're unemployed, you can actually pay for your medical insurance premiums through your Roth IRA with no penalties.

Number seven, substantially equal periodic payments. Now, I do want to spend a little bit of time on this one. It's not very well known. It can be really powerful. Probably gonna do a whole show on this one, because for someone who wants to retire early, this can be a great strategy, and let's be real, everybody wants to retire early. But just know that there's a way that you can say, I'm going to take up the same amount of money for at least five years out of my Roth, and I will not have to pay the 10 penalty.

Also, it works with an IRA. So if you have a big 401K, you're retiring early, and you say you're age 55, you could say, all right, I'm gonna pull the same amount of money out each year for five years until I'm 60 or over 59 and a half, and they'll actually waive the 10 penalty for you. Very cool.

Number eight, qualified higher education expenses. We already talked about that one. Having access to your contributions tax-free, penalty free can be extremely powerful. Think about this: if you have a child and you start maxing out your Roth IRA, let's just assume six thousand dollars per year with no inflation, which we know the contribution limits are going to go up as they always do. Let's just assume we do 6 000 every year for 18 years. That's over a hundred thousand dollars that you can now use tax-free, penalty free for your child's education. And what's even cooler, that a lot of people don't know, is that this isn't counted on your child's FAFSA because it's your retirement account.

Number nine, birth or adoption. Now, this one's limited to five thousand dollars, but it's nice to have a little bit of flexibility with the account.

As you can see, a Roth IRA is one of the most powerful accounts that we have access to. It should be something to consider in your overall portfolio. Now, let me be clear, I'm not giving specific advice or saying that you should put all of your money in your Roth 401k as opposed to the regular 401k, or all the money goes into this after tax bucket, because once you start making a lot of money, deductions are really powerful. But having some money in this tax-free environment now and in the future, it can be really powerful and really increase the flexibility that you have once you start taking retirement income. Clients with Roth money are extremely happy that they have it.

I hope that's helpful, and thanks for joining me on We're Talking Money. Please like, share and subscribe. We're putting out lots of relevant and interesting information out all the time, so be sure that your scraps you don't miss it. Thanks, we'll talk to you soon.

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