A:

There are two possible answers to this question, depending on whether or not the distribution from the Roth IRA is qualified.

Earnings on investments within a Roth IRA are neither subject to income tax nor are they included in the IRA owner's income. Instead, they accumulate on a tax-deferred basis and are tax free when withdrawn from the Roth if the distribution is qualified.

If an individual receives a distribution from his/her Roth IRA and the distribution is qualified and therefore tax free, the amount is not included in the individual's income - therefore, it is not included in the modified adjusted gross income (MAGI) to determine Roth IRA eligibility. However, if the distribution is not qualified, then the amount attributable to earnings is included in the individual's MAGI to determine Roth IRA eligibility.

(To learn more about Roth IRAs, check out our Roth IRA Tutorial, Tax Treatment Of Roth IRA Distributions and Roth IRA: Back To Basics.)

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Can I deposit a taxed distribution from my traditional IRA into my Roth IRA?

    I open a Roth IRA at age 70 1/2. I get a taxed distribution from my traditional IRA, but I don't need all that money. Can ... Read Answer >>
  2. Is a Roth IRA the right choice for me?

    Is a person with Deferred Compensation also eligible to open a Roth IRA account?  Can a person begin the Roth IRA ... Read Answer >>
  3. Should I reinvest my dividends into my Roth IRA?

    I have two brokerage accounts, one is an individual account the other is a Roth IRA. I am thinking about using my dividends ... Read Answer >>
  4. Can you make regular monthly contributions to a backdoor Roth IRA?

  5. Can I borrow money from my Roth IRA to pay off my mortgage loan?

  6. I am over 60 years old and have a Roth IRA to which I have made contributions for ...

    Because you meet the five-year requirement (i.e. it has been five years since you first established and funded a Roth IRA) ... Read Answer >>
Related Articles
  1. Retirement

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  2. Retirement

    Roth IRAs: Introduction

    The Roth IRA is a retirement saving account to which individuals can make contributions with after-tax dollars. If certain requirements are met, distributions from the Roth IRA will be tax-free. ...
  3. 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.
  4. Retirement

    Roth IRAs: Conclusion

    Like the Traditional IRA, Roth IRAs are flexible, and they are a popular way for individuals to save for their retirement. Roth IRAs differ, however, because assets can grow on a tax-free basis. ...
  5. 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 ...
  6. Retirement

    An Introduction to Roth IRAs

    Be sure to consider the tax benefits and the eligibility requirements of the Roth IRA.
  7. Retirement

    Roth IRAs: Investing And Trading Do’s And Don’ts

    Just what can you invest in in a Roth IRA? And what constitutes a prohibited transaction?
  8. Retirement

    Tax Treatment Of Roth IRA Distributions

    Learn the requirements for withdrawing funds tax and penalty free.
  9. Financial Advisor

    Is the Roth IRA Under Threat?

    Roth IRAs are one of the most popular retirement savings accounts. Could Congress ever decide that too much money is being sheltered from taxation?
  10. Retirement

    Roth IRA Contribution Limits in 2016

    Discover the benefits of Roth IRA accounts and how much you can contribute for your retirement. Learn which IRA plan is best for you.
RELATED TERMS
  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  3. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  4. Ordering Rules

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

    A method that taxpayers can use to place retirement savings in ...
  6. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

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

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

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

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

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center