IRA's Roth, Tax deferred & disability?

[0485c10]

Any words of wisdom about them with disability?

in the last few weeks i am learning a lot about them that i should have learned 7 years ago when i went on disability.

i just didn't realize i should look at them when my status changed to disabled. most "pressing" is i think a missed opportunity? I think i could have been converting a small amount of the tax-deferred IRA to a Roth which can be taken out w/out taxes. if i convert a small amount of tax-deferred IRA yearly to a Roth-below a level of it affecting a change to my tax bracket it can be taken out in its entirety with out a tax shock that would happen in the future if i took tax-deferred IRA funds all at once to buy something needed in the future???

i didn't have my 40's, 50's or half my 60's to prepare for retirement, so its not much. not sure about any of this.
i'm not a "financial type" of person.

but at least i'm looking at it now. i'm even thinking about calling the local aging & disability resource center for advice on IRA's. another thing i should have thought about 7 years ago. the people who have your money for retirement have no motivation to contact you about giving it back, especially when earlier than planned. and when earlier than planned you just don't have easy access to the information resources if it had happened in the correct time frame.

i want to encourage anyone with this change in status to check your personal circumstances.. i will post what i learn. it was all terribly confusing happening during this terrible economic time.

i apologize in advance if i have offended anyone who did not even have their 30's or the terrible economy caused the end of what they saved for retirement. I realize both when i am lucky & not as lucky as i would have wanted to be.

[freedom1]

Not really sure what your question is but with Traditional IRA's you can withdraw money prior to 59 and 1/2 without penalty if you are disabled. Depending on the state you live in you may only have to pay federal taxes.

As for a Roth it is true you can withdraw without penalty and no federal tax only because when you convert from a traditional or open a Roth you pay the federal tax upfront. Again depending on your state you may have to pay them also.

The federal government will get your money any which way you look at it. Not sure if the rules have changed, I haven't done this in a few years, but you may be able to convert to a Roth at this point. However, you will pay the federal tax on the amount you convert. If you are on SSDI, have no other income and file a separate tax return I am not sure there is any benefit to conversion. It's a pay now pay later type of deal.

A tax accountant would be the best person to answer your questions, but I hope this helps.

[Hawkgirl]

Oh my gosh, I never even thought about this stuff. I've been on disability for about 8 years. If anyone has good info on preparing for the future, I will be eagerly reading!

[0485c10]

Yes your reply did help freedom1

i wasn't even certain what a tax free IRA is called: Traditional & Roth. I have both.

i'm really in troubled waters when it comes to finances. i suspect i wish most that you were local & could explain some of the issues i don't understand. i feel like i am just scraping a surface to get some understanding.

I read on the fidelity website that it may be advantageous to convert to Roth because it can be withdrawn tax free at a later date. I'm at 200% poverty and have qualified for PA for meds in the past. if i were to take out enough to buy a replacement car for example from a traditional IRA the tax penalty might place my income over the amount to qualify for PA? If i convert say 2% a year, that 2% would be taxed(which is no taxes at 200% poverty) but i would remain within the level of qualifying for PA. And since it is only a conversion I could allow it to grow tax free after that until i need to with draw and use. the withdrawal at that time would be without taxes because the "taxes" would have already been paid at 200% poverty.


PS(TMI)-this whole investigation started with an educational fund for my nieces & nephews. I had to do maintenance on that and said to a financial planner, my risk level was for a 30 year old, it may be time to throttle down on risk? that went into "re balancing" my portfolio for risk. and here i am lost. nothing accomplished.

i think an appointment with a tax accountant is in my near future. but a financial planner for how to "re-balance" for age appropriate risk also.

[freedom1]

I hope that you are able to get the answers you need. I would start by looking for a good tax accountant who also does financial planning. They are out there. Not all financial advisors are up on tax codes and they change from year to year. From what I am reading that is the most important piece of the puzzle in your case.

Not knowing anything about your financial situation, but you referenced college funds and buying a car, I am assuming you are talking decent balances. I would caution you about moving money from instruement to instruement. ie, traditional, roth, esa, 401k, 403b, etc. The federal government and sometimes state is notified about every change that is made in this fashion. They are not notified if you change within the same plan ie, pushing risk level up or down. You don't want to do anything that throws up a flag to the IRS.

Not that these changes will absolutely cause a problem for you, however you don't want to give them a reason to look at your situation. That is why an accountant is necessary before making any change.

[heliotrope]

Consider contacting your local MS society. Many have a financial planner option.

[0485c10]

Hi again freedom1--you're telling me the words between traditional versus roth helped very much in a telephone conversation with fidelity. The confusion i had for many weeks was not the difference between Roth & Traditional...it was the difference between a IRA that is setup to be mutual funds only or mutual funds & company matching stock. i knew the 2 IRA's couldn't do the same things but i couldn't understand why they were not doing the same things? I thought it was a difference between taxes. it had nothing to do with taxes at all.

You know how it goes...I knew I did not understand something, but I didn't know what it was? So I kept asking the same question over and over until an answer felt right.

i did finally explain to the person i talked to that i am not in a "normal" 48 year old situation, but in extenuating circumstances. what can i say, this feel "normal" to me now, it didn't occur to me i need to explain its an unusual situation. once they understood that, they were able to answer my questions for my situation.

still a lot to do before i get it all resolved to the point i don't have to think about again until i'm 65. i need to take a break from it, for at least day. i've got a truck load of papers i printed out from the internet all over the floor. first thing to do today or tomorrow is clean that up! napp first & maybe ice cream to de-stress.

a tax advisor is still in my near future & i do hope I can find a planner/tax accountant combo. my mother is checking on the name of which one her bil uses. and i will see what makes sense.

its not that much,it could grow to something more healthy depending on the economy. The education part is not mine. just something i promised my grandmother to pass on the the kids for their education when they are old enough & its constrained by the requirement they go to school. they will.

i did find out i have earned a small defined pension from a past job i had..but i am doing the right thing by delaying taking it until my normal age of retirement. the amount decreases significantly if i take it early. i did right by focusing so much on living within my SSDI for the past 7 years. I don't think anything changes now from this call, but it will get better when i turn 65-67. The tax implication are the same though because of disability. Its delayed financial gratification with pension & IRA's.