Roth IRA Question on Earnings

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I have a basic question and I assume the answer is no but let's say I have a Roth IRA with 100K in it and you put it all in a utility mutual fund that pays a 10% dividend.

Can you elect to have that $10,000 sent directly to you, effectively leaving your balance at 100k? Or must it be capitalized into the balance?

Or any income fund for that manner?

Someone mentioned about having multiple streams of income in another thread and it got me thinking. I know interest in the form of growth (selling shares) cannot be withdrawn. . .not sure about dividends.

[kv968]

I'm not totally sure either but I would venture to say no. I recently looked into getting the dividends on the company stock I own in my 401k sent to me quarterly since its an option. Although I could take the dividends without an early withdrawl penalty, they would impose a 35% income tax hold on them. There is a W-9 form you could fill out that would allow them to send the money without holding the tax but the plan wouldn't allow it. The company stock was also the only thing I had the option of getting the dividend sent to me. As far as the other funds, everything had to be reinvested as I imagine everything you hold in your IRA would have to be unless you were to incur an early withdrawl penalty with taking the distribution.

[disneysteve]

You can withdraw contributions to a Roth without penalty but earnings would be subject to the early withdrawal penalty.

[simpletron]

the IRS doesn't track what in the account is an "earning" versus a "contribution". think of your roth IRA as a black box; where as long as total contribution ever is greater than total withdraws ever, then the next dollar is considered a contribution regardless of the source in the IRA. so if you contributed 100K to a roth IRA, then you could withdraw 10K/year for 10 years even if you are withdrawing just the dividend (which most would think of as an earning).

I know interest in the form of growth (selling shares) cannot be withdrawn

not exactly true. let's say I contribute 5K and buy stock ABC, and stock ABC doubles in price. I can sell half of my holdings in ABC and withdraw them penalty free (because I'm only withdrawing 5K).

also you treat multiple roth IRA as you large one. so if I contribute 5K at broker 1 and contribute 5K at broker 2. if account 1 doubles, then I can withdraw penalty-free the full 10K from the account 1, but then any non-qualified withdraw from account 2 would have a penalty.

[Broken Arrow]

You can withdraw contributions to a Roth without penalty but earnings would be subject to the early withdrawal penalty.

That is basically it for anyone before 59.5... short of any other very specific exceptions such as an additional $10k withdraw for first time homeowners or for dire medical emergencies. Something like that.

Unfortunately, the Roth doesn't make an ideal vehicle for setting up passive income streams. That would be best accomplished with taxable accounts. Your earnings would get taxed like income (unless withdraws are more than a year), but you can use it like any other earned income money.

Well... I guess you can run it for 10 years though.

[jIM_Ohio]

hey- if the fund paid 10% in dividends, the 100k would be 90k with 10k paid in dividends.

Your "net" is 0%.

Most brokerages and fund companies allow you to put "earnings and dividends" anywhere (reinvest them, direct them to a money market account, or direct them to a checking account).

The issue is the "Roth" wrapper on the fund has some IRS limitations. Are you age 59.5 or older?