Distributions that do not meet the above criteria are considered non-qualified and may be subject to and early distribution penalties (usually 10%). Those that do meet the criteria are usually excluded from an individual’s gross income.
In addition to qualified distributions, additional rules pertaining to Roth IRAs include , wherein the IRS requires account holders to begin taking annual distributions by age 70½ or retirement, whichever is later.
Direct and indirect rollovers are key aspects of Roth IRAs and other forms of retirement plans, along with qualified distributions. In a direct rollover, the retirement plan administrator pays the plan’s proceeds directly to another plan or to an IRA, such as a . In an indirect rollover, a plan administrator transfers assets among plans by giving an employee a check to be deposited into their own personal account. With an indirect rollover, it is up to the employee to redeposit the funds into the new IRA within the allotted 60 day period to avoid penalty.
Most rollovers (direct or indirect) occur when people change jobs, but some occur when account holders simply want to switch to an IRA with better benefits or investment choices.
Another important note for contributors age 50 and older: The catch-up contribution is a type of retirement savings contribution that allows people over 50 to make additional contributions to their 401(k) and/or (IRAs). The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) created catch-up contributions so that older individuals would be able to set aside enough savings for retirement.