Qualified Distribution

AAA

DEFINITION of 'Qualified Distribution'

Distributions made from a Roth IRA that are tax and penalty free. In order to be a qualified distribution, the following two requirements must be met:

1) It must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA

2) At least one of the following requirements must be met:

a) The Roth IRA holder must be at least age 59.5 when the distribution occurs.
b) Distributed assets limited to $10,000 are used towards the purchase or rebuilding of a first
home for the Roth IRA holder or a qualified family member.
c) The distribution occurs after the Roth IRA holder becomes disabled.
d) The assets are distributed to the beneficiary of the Roth IRA holder after his/her death.

INVESTOPEDIA EXPLAINS 'Qualified Distribution'

Distributions that do not meet the above criteria are considered non-qualified and may be subject to income tax and early distribution penalties.

RELATED TERMS
  1. Recharacterization

    The treatment of a contribution as being made to another type ...
  2. IRA Adoption Agreement And Plan ...

    A contract between the owner of an individual retirement account ...
  3. Reconversion

    A method used by individuals to minimize the tax burden of converting ...
  4. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  5. Non-Qualified Distribution

    1) A distribution from a Roth IRA that occurs before the Roth ...
  6. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
RELATED FAQS
  1. I withdrew funds from my Roth IRA to contribute elsewhere. How will I be taxed?

    If you close the Roth IRA now and withdraw the balance, you will be taxed on the earnings unless the distribution is qualified. ... Read Full Answer >>
  2. How should I invest the money I keep on my IRA?

    For individuals who are just starting to save, certificates of deposit can be a good place to start, but the interest rates ... Read Full Answer >>
  3. Why choosing the right investment adviser is crucial for your portfolio's health

    Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial advisor can ... Read Full Answer >>
  4. What documents I need to transfer an IRA/SEP/SIMPLE to a Traditional IRA?

    Most firms require that you complete their account transfer request form, which they use to request the transfer of assets ... Read Full Answer >>
  5. Is there a limit on how much I can move from my IRA to my Roth IRA?

    There is no limit on the amount that can be converted from your Traditional IRA to your Roth IRA. To learn more, read Retirement ... Read Full Answer >>
  6. Places where I can open an IRA Account?

    An individual retirement account can be opened through a range of major financial institutions, including brokerage firms ... Read Full Answer >>
Related Articles
  1. Taxes

    Preparing For Retirement Plan RMD Season

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  2. Retirement

    How IRA Contributions Affect Your Taxes

    Learn how to work with the tax man to avoid getting gouged when you convert your plans.
  3. Taxes

    9 Penalty-Free IRA Withdrawals

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

    6 Important Retirement Plan RMD Rules

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  5. Options & Futures

    Know The Rules For Roth 401(k) Rollovers

    Rolling a Roth 401(k) into a Roth IRA is usually the optimal thing to do.
  6. Retirement

    A Closer Look At The Roth 401(k)

    Learn about the benefits and drawbacks of this new investment account and see if it's right for you.
  7. Retirement

    Asset Distributions A Key Consideration For Retirees

    How you distribute qualified retirement plan money can affect your taxes and Social Security benefits.
  8. Retirement

    IUL Insurance: An Alternative Retirement Plan?

    Indexed universal life insurance is the rise. But critics argue that wisely allocated IRA and 401(k) funds will normally offer better returns.
  9. Personal Finance

    A Guide to Financial Education for Doctors

    Doctors need to choose the educational option which best fits his or her time, schedule and learning preference. Here's a guide.
  10. Retirement

    Some Tax Considerations For Your Retirement Income

    Even if you don’t plan to retire, it’s still a good idea to think ahead about where to live, your income and how it all interacts with Social Security.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center