Round Rock Advisors is an independent, full-service, financial planning and wealth management practice, dedicated to
providing a full spectrum of highly personalized financial services for individuals, families, and businesses. Our experienced
team of financial advisors and Certified Financial Planner professionals offer objective solutions and services, tailored to
each client’s unique circumstances and goals. We are committed to developing deep, trusted client relationships and we are
invested in safeguarding what matters most to clients.
Student Debt: It’s Not Just for Young Adults
Recent college graduates aren’t the only ones carrying student loan debt. A significant number of older Americans have
student debt, too. In fact, student loan debt is the second-highest consumer debt category after mortgage debt. In total,
outstanding student loan debt in the United States now stands at approximately $1.5 trillion, with the age 30 to 39 group
carrying the highest load.
Student loan debt by age, in billions
Page 1 of 4, see disclaimer on final
page
Four Questions on the Roth Five-Year Rule
The Roth “five-year rule” typically refers to when you can
take tax-free distributions of earnings from your Roth IRA,
Roth 401(k), or other work-based Roth account. The rule
states that you must wait five years after making your first
contribution, and the distribution must take place after age
59%, when you become disabled, or when your beneficiaries
inherit the assets after your death. Roth IRAs (but not
workplace plans) also permit up to a $10,000 tax-free
withdrawal of earnings after five years for a first-time home
purchase.
While this seems straightforward, several nuances may
affect your distribution’s tax status. Here are four questions
that examine some of them.
- When does the clock start ticking?
“Five-year rule” is a bit misleading; in some cases, the
waiting period may be shorter. The countdown begins on
January 1 of the tax year for which you make your first
contribution.
Roth by the Numbers
19%
U.S. households who owned
Roth IRAs in 2019
36%
Roth IRA-owning households
who contributed to them for tax
year 2018
69%
Employers that offered a Roth
401{k) plan in 2018
23%
Eligible employees who
contributed to a Roth 401(k) in
2018
Sources: Investment Company Institute
and Plan Sponsor Council of America,
2019
For example, if you open a Roth IRA on December 31, 2020,
the clock starts on January 1, 2020, and ends on January 1,
2025 — four years and one day after making your first
contribution. Even if you wait until April 15, 2021, to make
your contribution for tax year 2020, the clock starts on
January 1,2020.
- Does the five-year rule apply to every
account?
For Roth IRAs, the five-year clock starts ticking when you
make your first contribution to any Roth IRA.
With employer plans, each account you own is subject to a
separate five-year rule. However, if you roll assets from a
former employer’s 401(k) plan into your current Roth 401(k),
the clock depends on when you made the first contribution
to your former account. For instance, if you first contributed
to your former Roth 401(k) in 2014, and in 2020 you rolled
those assets into your new plan, the new account meets the
five-year requirement. - What if you roll over from a Roth 401(k)
to a Roth IRA?
Proceed with caution here. If you have never previously
contributed to a Roth IRA, the clock resets when you roll
money into the Roth IRA, regardless of how long the money
has been in your Roth 401(k). Therefore, if you think you
might enact a Roth 401(k) rollover sometime in the future,
consider opening a Roth IRA as soon as possible. The five-
year clock starts ticking as soon as you make your first
contribution, even if it’s just the minimum amount and you
don’t contribute again until you roll over the assets. 1 - What if you convert from a traditional
IRA to a Roth IRA?
In this case, a different five-year rule applies. When you
convert funds in a traditional IRA to a Roth IRA, you’ll have
to pay income taxes on deductible contributions and tax-
deferred earnings in the year of the conversion. If you
withdraw any of the converted assets within five years, a
10% early-distribution penalty may apply, unless you have
reached age 59% or qualify for another exception. This rule
also applies to conversions from employer plans. 2
1 You may also leave the money in your former employer’s plan, roll the
money into another employer’s Roth account, or receive a lump-sum
distribution. Income taxes and a 10% penalty tax may apply to the taxable
portion of the distribution if it is not qualified.
2 Withdrawals that meet the definition of a “coronavirus-related
distribution” during 2020 are exempt from the 10% penalty.
Page 1 of 4, see disclaimer on final
page
Four Questions on the Roth Five-Year Rule
The Roth “five-year rule” typically refers to when you can
take tax-free distributions of earnings from your Roth IRA,
Roth 401(k), or other work-based Roth account. The rule
states that you must wait five years after making your first
contribution, and the distribution must take place after age
59%, when you become disabled, or when your beneficiaries
inherit the assets after your death. Roth IRAs (but not
workplace plans) also permit up to a $10,000 tax-free
withdrawal of earnings after five years for a first-time home
purchase.
While this seems straightforward, several nuances may
affect your distribution’s tax status. Here are four questions
that examine some of them.
- When does the clock start ticking?
“Five-year rule” is a bit misleading; in some cases, the
waiting period may be shorter. The countdown begins on
January 1 of the tax year for which you make your first
contribution.
Roth by the Numbers
19%
U.S. households who owned
Roth IRAs in 2019
36%
Roth IRA-owning households
who contributed to them for tax
year 2018
69%
Employers that offered a Roth
401{k) plan in 2018
23%
Eligible employees who
contributed to a Roth 401(k) in
2018
Sources: Investment Company Institute
and Plan Sponsor Council of America,
2019
For example, if you open a Roth IRA on December 31, 2020,
the clock starts on January 1, 2020, and ends on January 1,
2025 — four years and one day after making your first
contribution. Even if you wait until April 15, 2021, to make
your contribution for tax year 2020, the clock starts on
January 1,2020.
- Does the five-year rule apply to every
account?
For Roth IRAs, the five-year clock starts ticking when you
make your first contribution to any Roth IRA.
With employer plans, each account you own is subject to a
separate five-year rule. However, if you roll assets from a
former employer’s 401(k) plan into your current Roth 401(k),
the clock depends on when you made the first contribution
to your former account. For instance, if you first contributed
to your former Roth 401(k) in 2014, and in 2020 you rolled
those assets into your new plan, the new account meets the
five-year requirement. - What if you roll over from a Roth 401(k)
to a Roth IRA?
Proceed with caution here. If you have never previously
contributed to a Roth IRA, the clock resets when you roll
money into the Roth IRA, regardless of how long the money
has been in your Roth 401(k). Therefore, if you think you
might enact a Roth 401(k) rollover sometime in the future,
consider opening a Roth IRA as soon as possible. The five-
year clock starts ticking as soon as you make your first
contribution, even if it’s just the minimum amount and you
don’t contribute again until you roll over the assets. 1 - What if you convert from a traditional
IRA to a Roth IRA?
In this case, a different five-year rule applies. When you
convert funds in a traditional IRA to a Roth IRA, you’ll have
to pay income taxes on deductible contributions and tax-
deferred earnings in the year of the conversion. If you
withdraw any of the converted assets within five years, a
10% early-distribution penalty may apply, unless you have
reached age 59% or qualify for another exception. This rule
also applies to conversions from employer plans. 2
1 You may also leave the money in your former employer’s plan, roll the
money into another employer’s Roth account, or receive a lump-sum
distribution. Income taxes and a 10% penalty tax may apply to the taxable
portion of the distribution if it is not qualified.
2 Withdrawals that meet the definition of a “coronavirus-related
distribution” during 2020 are exempt from the 10% penalty.
Telemedicine: The Virtual Doctor Will See You Now
Widespread smartphone use, loosening regulations, and
employers seeking health cost savings are three trends that
have been driving the rapid expansion of telemedicine. And
that was before social distancing guidelines to help control
the spread of COVID-19 made the availability of remote
medical care more vital than anyone anticipated.
Easy Interaction with Health Professionals
Telemedicine offers a way for patients to interact with
doctors or nurses through a website or mobile app using a
secure audio or video connection.
Patients have immediate access to advice and treatment
any time of the day or night, while avoiding unnecessary and
costly emergency room visits. And health providers have the
ability to bill for consultations and other services provided
from a distance.
Telemedicine can be used to treat minor health problems
such as allergies and rashes, or for an urgent condition such
as a high fever. It also makes it easier to access therapy for
mental health issues such as depression and anxiety.
In other cases, doctors can remotely monitor the vital signs
of patients with chronic conditions, or follow up with patients
after a hospital discharge. Telemedicine can also fill gaps in
the availability of specialty care, especially in rural areas.
Telemedicine offers a way for patients to
interact with doctors or nurses through a
website or mobile app using a secure
audio or video connection.
Offered by Many Health Plans
In 2019, nearly nine out of 10 large employers (500 or more
employees) offered telemedicine programs in their benefit
packages, but many workers had not tried them out.
Only 9% of eligible employees utilized telemedicine services
in 2018 (the most recent year for which data is available),
even though virtual consultations often have lower copays
and are generally less expensive than in-person office visits,
especially for those with high deductibles. 1
If your health plan includes telemedicine services, you might
take a closer look at the details, download the app, and/or
register for an online account. This way, you’ll be ready to
log in quickly the next time your family faces a medical
problem.
1) Mercer National Survey of Employer-Sponsored Health Plans, 2019
Round Rock Advisors LLC is a registered investment advisor. Information in this message is for the intended recipients] only. Please visit
our website www.RoundRockAdvisors.com for important disclosures.
This newsletter is intended to provide general information. It is not intended to offer or deliver tax, legal, or specific investment advice in
any way. For tax or legal advice, please consult a qualified tax professional or legal counsel. Different types of investments involve varying
degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be
profitable.
Cited content on in this newsletter is based on generally-available information and is believed to be reliable. The Advisor does not
guarantee the performance of any investment or the accuracy of the information contained in this newsletter. For information on the
Advisor’s services and fees, please refer to the Round Rock’s Form ADV Part 2. The Advisor will provide all prospective clients with a copy
of Round Rock’s Form ADV2A and applicable Form ADV 2Bs. Please contact us to request a free copy via .pdf or hardcopy.
