are distributions from a roth ira taxable
Jim decides to close his Roth IRA in a non-qualified distribution that year. Since the distribution is non-qualified, Jim will owe taxes on his Roth earnings of $1,500, and will pay tax on this amount at his marginal tax rate. First, if you are younger than 59½ and you remove money from a Roth within 5 years of conversion, you will owe a 10% early withdrawal penalty. (Note that the 5-year measurement for Roth conversion distributions starts from the first day of the tax year in which the conversion is made.) 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 may be subjected to tax and an early distribution penalty. Qualified Distribution Defined. Your non-IRA money has already been taxed, so it might as well be used first. Your IRA money is either tax deferred or tax free, in the case of a Roth, so you want to leave it untouched. In other words, from a tax standpoint, it’s better to spend down your non-IRA principal before touching any of your IRA money. Are Roth IRA distributions taxable? Roth IRA distributions of your original contributions aren’t taxable; however, earnings or interest on those contributions can be taxable if either of the following are true: You didn’t have your Roth IRA for five years before taking the distribution. Penalties on Earnings from Contributions. Unless an exception applies, most distributions from a Roth IRA before the owner reaches age 59 1/2 will be subject to an early withdrawal penalty of 10% on the amount of the distribution. Withdrawals made after age 59 and 1/2 are normal retirement withdrawals and are not taxed. You paid tax on that income when you first contributed to the Roth IRA. If the withdrawal is made before age 59 and 1/2 and is only up to the amount that has been contributed to the Roth IRA then no income tax is charged. Roth IRA contributions are not taxed at the time you contribute the funds to your Roth IRA. However, your contributions come from post-tax income. You pay taxes on your income today, but not in the future. Roth IRAs do not receive a tax break that pre-tax retirement accounts such as Traditional IRAs and 401k plans receive. Roth contributions (assuming you did a conversion and it’s the first time you have had a Roth, this will be zero). Roth conversion money, in chronological order if more than one, first the taxable amounts and then any non-taxable amounts rolled over of each conversion. Earnings on Roth contributions or conversions. Roth distributions should be made in the following order: 1  From non-taxable annual contributions to a Roth IRA (other than conversion amounts) 2  From conversion contributions, on a first-in, first-out (FIFO) basis. 3  From earnings.
No, Qualified distributions from Roth IRAs are tax and penalty free.