The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: GOFU on February 02, 2018, 07:13:10 PM
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Roth 401k.
Qualified withdrawals are not subject to income tax. Does that apply to gains too?
Example: I put $5k of post-tax earnings in a Roth 401k, and have investment earnings inside the account of $10k, so the account is worth $15k.
I make a qualified withdrawal of $12k.
Are the $7k of gains that I withdrew subject to income tax?
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Yes.
Edit: No if you mean waiting until 59.5 when you can pull it out tax free.
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That is somewhat of a trick question. If by "qualified withdrawal" you mean "qualified distribution (https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts#distns)" then the answer is "no" because
a qualified distribution from a designated Roth account is not included in your gross income.
If "qualified withdrawal" means something else, then it depends on what it means.
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That is somewhat of a trick question. If by "qualified withdrawal" you mean "qualified distribution (https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts#distns)" then the answer is "no" because a qualified distribution from a designated Roth account is not included in your gross income.
If "qualified withdrawal" means something else, then it depends on what it means.
OK. Learning my nomenclature as well. Thank you for that.
So your answer is no, the gains are not subject to income tax. @VoteCthulu says yes. Seems we have a conflict.
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Follow the "qualified distribution" link....
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MDM is the correct one.
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I thought he was talking about withdrawing right away, you can withdraw you contributions at any time without paying tax, but you have to wait until 59.5 or the gains are taxable. MDM's link has everything you need.
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Yes, I was not clear in my original question. I am talking about a qualified distribution after age 59.5.
Alles klar!!!
Thank you for the responses and the resource.