Is my non-qualified Roth IRA distribution subject to taxes or early distribution penalties?

By Denise Appleby AAA
A:

The ordering rules must be applied to determine whether the distribution is subject to income taxes and/or the early distribution penalty. Under these ordering rules, distributions are taken from funding sources in the following order:

Note: Roth conversion amounts are not considered distributed until all contribution amounts have been distributed; earnings are not considered distributed until all contribution - and then all conversion - amounts have been distributed

If your distribution consists of only contributions, the amount is tax and penalty free.

If your distribution includes amounts attributed to conversion amounts, that amount will be subject to the early distribution penalty, unless an exception applies.

If your distribution includes amounts attributed to earnings, that amount will be subject to income tax and the early distribution penalty. The penalty is waived if an exception applies.

To learn more, see Avoiding IRS Penalties On Your IRA Assets and Tax Treatment Of Roth IRA Distributions.

Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

RELATED FAQS

  1. What's the difference between regressive and progressive taxes?

    Learn what a regressive tax is in comparison to a progressive tax, and understand the specific types of taxes that are considered ...
  2. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ...
  3. What is the difference between an operating expense and a capital expense?

    Learn the differences between an operating expense and a capital expense, and see how the two types of expenses are treated ...
  4. Should I purchase a master limited partnership (MLP) in my retirement account?

    Learn why investors may have to pay taxes on dividends from master limited partnerships, or MLPs, held in individual retirement ...
RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  3. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...
  4. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  5. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  6. Gold IRA

    Definition of Gold IRA

You May Also Like

Related Articles
  1. Retirement

    Top 10 Stocks for Retirement Portfolios

  2. Trading Strategies

    Top 7 Roth IRA Stocks for 2015

  3. Options & Futures

    Options and Roth IRAs: Do's and Don'ts

  4. Investing

    Why did Larry Page pay himself a salary ...

  5. Professionals

    Are Longevity Annuities in 401(k)s a ...

Trading Center