And liquidating

Since you have already paid federal income taxes on the contributions you made to your Roth IRA, you may withdraw amounts up to the total of your contributions at any time for any reason without creating a taxable event.

You do not pay taxes on these funds and you do not even have to report the withdrawal of these funds.

Earnings must remain in your Roth IRA for at least five years to qualify for tax-free withdrawal once you reach retirement age.

If you must liquidate the earnings portion of your Roth IRA prior to reaching age 59 1/2, the earnings portion of your withdrawal will be taxed as ordinary income at your current tax rate.

In invoking this provision, one can assume that the BIR is looking from the viewpoint of the stockholder whereby it has all the characteristic of an outright sale.

At the CTA division level, however, the Court clarified that mere distribution of liquidating dividend on account of the dissolution of a corporation is not to be treated as sale for purposes of the imposition of capital gains tax.

Both types of IRAs offer significant, but different tax benefits, including the way funds from the accounts are taxed when they are liquidated.It is clearly provided in Section 73(A) of the code that the gain realized or loss sustained by a stockholder is a taxable income or a deductible loss.An expanded version of the same can also be found in Section 8 of Revenue Regulations 6-2008 whereby it is clarified that the capital gain or loss derived by stockholders in receiving liquidating dividends are subject to regular income-tax rates.But this is subject to tax on the part of the receiving stockholder.**** The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter.

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