A:

It is true that at any time you may take out (distribute) the amount you converted without paying tax on the amount because you already did when the amount was converted. However, if you are under age 59 ½ and it has been less than five years since the conversion occurred, the amount will be subject to the 10% early-distribution penalty - unless you qualify for an exception. If it has been less than five years since your first Roth IRA was established and funded, then any earnings you receive as a distribution will be subject to both income tax and the 10% early-distribution penalty, unless, again, you meet an exception (including reaching age 59 ½).

The following is a quick run-down of how Roth IRA distributions are taxed:

  • Regular contributions (distributed first) are always tax and penalty-free.
  • Roth conversions (distributed after contributions are used up in other distributions) are always tax-free. However, they are penalty-free only if it has been five years since the amount was converted or if the Roth IRA owner meets an exception.
  • Earnings are subject to tax unless the distribution is qualified. If the distribution is not qualified, the earnings also will be subject to the 10% early-distribution penalty unless the Roth IRA owner meets an exception.

This question was answered by Denise Appleby
(
Contact Denise)

RELATED FAQS
  1. Can I rollover money and the required distribution from my traditional IRA to a ...

  2. I converted my former IRA to a Roth for tax purposes in 1998, so even though the ...

    Because you are over age 59 ½, you will not owe any early-distribution penalty on any distributions you take from your Roth ... Read Answer >>
  3. My Traditional IRA has been converted to a Roth IRA. Can I still make a qualified ...

    If you converted the funds less than five-years ago, you will not be able to meet the qualified distribution requirements. ... Read Answer >>
  4. If I use the Roth IRA backdoor technique when I'm less than 59 years old, do I have ...

  5. What are the tax consequences of a Roth IRA distribution if the IRA holder is younger ...

    The tax treatment of a Roth IRA distribution depends on whether the distribution is qualified. Qualified distributions from ... Read Answer >>
  6. I'm an 80 year old making increasing required minimum distribution (RMD) tax payments. ...

    First, some background information: the tax treatment of a Roth IRA distribution depends on whether or not the distribution ... Read Answer >>
Related Articles
  1. Retirement

    Tax Treatment Of Roth IRA Distributions

    Learn the requirements for withdrawing funds tax and penalty free.
  2. Retirement

    Roth IRAs: Distributions

    The tax treatment of a Roth IRA distributions depends on whether the distribution is qualified. Qualified distributions from Roth IRAs are tax and penalty free, but nonqualified distributions ...
  3. Retirement

    Avoiding IRS Penalties On Your IRA Assets

    The best way to avoid additional charges and taxes is to know which transactions have expensive consequences.
  4. Retirement

    How a Roth IRA Works After Retirement

    What retirees need to know about taxes, distributions and passing on your unspent savings to the next generation.
  5. Retirement

    Why You Should Have a Roth IRA

    The world of retirement savings plans is filled with options. Here are the reasons why you should consider a Roth IRA when saving for retirement.
  6. Retirement

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  7. Retirement

    Converting A Traditional IRA To A Roth

    When is it a good idea to convert traditional IRA funds into Roth IRA funds? And when does it not make sense?
  8. Retirement

    Roth vs. Traditional IRA: Which Is Right For You?

    To answer this question, you need to consider several of the factors we outline here.
  9. Investing

    3 Reasons to Convert Your IRA to a Roth IRA

    Having an IRA is smart. Knowing when to convert it to a Roth IRA is smarter because it can give you and your heirs a welcome tax advantage.
  10. Retirement

    5 Reasons to Convert a Roth To a Traditional IRA

    Here's a quintet of cases when the traditional IRA trumps the Roth version.
RELATED TERMS
  1. Non-Qualified Distribution

    1) A distribution from a Roth IRA that occurs before the Roth ...
  2. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  3. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  4. Roth IRA

    An individual retirement plan that bears many similarities to ...
  5. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  6. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center