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Speaker 1: So, it seems that there's still a lot of confusion out there about a few things. So, today's podcast is about you not making this one mistake, because if you make this mistake, it is a big, big mistake. And I don't want you to make a big mistake, you don't have to make a big mistake. But you're not listening, you're not hearing what I am saying to you. So, you have got to sit down right now. Sit down, clear your head, shake your head so that you can hear what I am telling you. And I'm talking to you now about the difference between a contributory Roth IRA, a converted Roth IRA, a 401k Roth, and 403b Roth or a TSP Roth.Just because they all have the name, “Roth” in them, does not mean that they all operate under the same tax guidelines, because they do not. They do not, they do not. Now, why am I wanting to do this podcast about this today? Because I get an email, and I get an email from a woman by the name of Eve. And Eve says to me the following: I have a Roth IRA. I called to see if I can take out my contributions and they inform me I have to fill out a hardship form and contact our third party to get that form. Well, my third party informed me, that although it's a Roth, and since I'm taking it out early because I'm 37, there will be a 10% penalty at the end of the year. Is that true? So, she goes on and essentially what she's saying, is that she's heard me say that if you have a contributory Roth, that you can take out any money that you contributed without taxes or penalties what so ever, regardless of how long that money has been in the account or your age. And I write her back and I say, they are 100% wrong because she told me she had a Roth IRA. And then I said, are you sure you have a contributory Roth IRA? And she writes back and she goes, well, it's a 401k Roth. And I then write her back and go, they’re 100% correct. So, let's just go over this one more time so that you do not almost make a mistake, or you make a mistake because you simply weren't listening. I want you to take out a pen and paper. I want you to write this down because I want you to understand the differences between them all. A contributory Roth IRA is one where every single year if you choose to and you qualify for it, you make a contribution to that Roth IRA.  The maximum, as of this year 2019, that you can put in if you qualify, is if you are under 50, you can put in $6k a year. If you are 50 or older, you can put $7k a year. That is the max that you can put in. Got that? If you contribute, you make a contribution, you put it into a Roth IRA, then that money you can withdraw, as I said earlier, without taxes or penalties, regardless of your age or how long the money has been in there. That’s your contributions. Now, your contributions, hopefully, will grow and will earn money. The earnings of that money cannot be withdrawn tax-free and penalty-free until you are 59 and a half years of age, and the account has been open for at least five years. Do you understand that? OK, that is how a contributory Roth works. Now, you have a converted Roth, what is that? That is money that, possibly you have in an IRA rollover, in a SEP IRA, in a traditional IRA, and you convert it to a Roth. Then that is known as a converted Roth. Very different than a contributory Roth because you already made contributions to the traditional IRA, the SEP IRA, the IRA rollover, that you rolled over possibly from a 401k or a 403b. Now those accounts are there, even your SEP IRA you contributed to, if you now convert that money to a Roth IRA, number one, you will owe taxes on any amount that you converted. Got that? So, you better think about how much money you are converting and you cannot use the money that's in those accounts to pay the taxes. So, you better have the money to do so. You should all check with your CPAs before you do so. And if you don't have a CPA, you should go to H&R Block, you should go somewhere and get the correct answer. Got that? Now, when you convert money to a Roth IRA, you cannot take that money out anytime you want, regardless of age or how long it's been in there. You have got to have the money that you converted in there for at least five years before you can take out that amount of money. Got that? So, if you're converting $25k, you cannot simply take that money out next year. It has got to be in there for at least five years and then you can take out the amount of money that you converted. But the earnings, again, still have to stay in there for at least five years or 59 and a half, whichever one comes last. So, if you happen to be 59 years of age, you happen to be even 73 years of age... Somebody just wrote in and said, I'm 73 years of age, I'm thinking about converting and paying the taxes now because my kids are in a higher tax bracket and they had all these reasons. Just because you're 59 and a half years of age when you convert, or older, does not mean that you can take out the amount of money that you converted. It has got to stay in there for at least five years or until you are 59 and a half, whichever one comes last. If you convert money into a Roth IRA, and it's been in there now two years let's just say, and you die, your beneficiaries are going to have to let it stay in there for another three years until that five-year rule was met. These are complicated topics. And therefore, you have got to make sure before you do something, and you have to understand them. In a contributory Roth IRA, it's different than a converted Roth IRA.And now we have a 401k, 403b or TSP Roth.  If you have a 401k plan, a 403b or a TSP where you work, they are employer-sponsored plans. They are very different than individual retirement accounts. If you go to withdraw money from any of those accounts while you're working in particular for that company, that is considered a hardship withdrawal, which means you need that money, and you are going to pay 10% penalty tax on it if you're not at least 59 and a half years of age or older, and you're going to pay ordinary income tax on it because it's a hardship withdrawal. You never want to take a hardship withdrawal from a 401k, a 403b or a TSP whether it's a Roth or it's a traditional IRA, a pre-taxed one. If you need money from any of those three accounts, normally your corporation, your non-profit, wherever your employer-sponsored plan happens to be where you are working. Ask your H.R. person if you can take a loan. If it's that bad and you need that money, you normally can take a loan. When you take a loan from your own 401k, 403b or TSP, whether it is a Roth or a traditional, you normally have five years to pay it back, unless you took a loan for a down payment on a home and then normally you can have 15 years to pay it back. But that way, you avoid the 10% penalty tax and ordinary income tax that you are going to be assessed if you do a hardship withdrawal.Where you are getting confused is because you think it is a Roth 401k, or a Roth 403b, or a Roth TSP, that you can withdraw that money in the exact same way as you could a Roth IRA that you contributed to. Both plans you did make contributions to. If you contributed to a Roth IRA, yearly, that's a contributory Roth IRA. If you contributed to a Roth 401k, let's say, that's a contributory Roth 401k. But a 401k works differently than an IRA, even though they are both Roth. Do you understand that? So, an employer-sponsored plan, you cannot just withdraw money from while you are working for them in any way that you want like you can with a contributory Roth. Now, you can have both. You can have both if your income allows you to do so because there are income qualifications that allow you to have a contributory Roth IRA. And I've talked to you about these many, many times. If you are single, filing taxes as a single person, got that? Your adjusted gross income, in order to make a full contribution this year of $6k if you are under 50, $7k if you are 50 or older, has got to be under $122k a year of adjusted gross income or less. As your income goes up, your adjusted gross income goes up once it reaches $137k, and now you're making more than that, you no longer are eligible for a regular contributory Roth IRA. If you are married filing jointly, those figures are $193k, and then once you reach $203k, you no longer qualify. Also, you can contribute up to the $6k or $7k per year, or if you're income, if all you made that year was like $3k, that then is the maximum that you can contribute to a Roth IRA. So, it is the income that you have earned, whichever one is less, up to a maximum of $6k or $7k in 2019. Are we clear that? All right. It is really important that you understand the differences again between a contributory Roth, a converted Roth, a Roth 401k, a Roth 403b, and a Roth TSP. At least let's just get that one thing right. And if you are confused, it is better to do nothing than to do something you do not understand. Are you listening to me? Are you listening to me? Are you hearing me? Are you writing it down? I can try to educate you, but if you do not pay attention, you are going to make a mistake. And this is one mistake I don't want you to make. 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