Save time with our cheat sheets, fact sheets, checklists & books!

November 11, 2010

Roth IRA Distributions- Determining Tax and Penalty

Earnings in Roth IRAs accumulate on a tax-deferred basis, but eventually become tax-free if distributions are qualified. The determination of whether a Roth IRA distribution is qualified is fairly simple. On the other hand, determining whether any portion of a non-qualified Roth distribution is taxable is a more involved process.  The following guidelines can be used to help determine whether a Roth IRA distribution is qualified, and if it’s not qualified, the possible tax consequences that may apply.
Roth IRA Distributions
A qualified Roth IRA distribution is one that meets the following two requirements:
1.It occurs at least five years after the owner established and funded his/her first Roth IRA and
2.It occurs under one of the following circumstances:
oAfter the owner reaches 59 ½,
oThe distribution was used towards the purchase, building or rebuilding the first home for an eligible party. This is subject to a life-time limit of $10,000,
oThe distribution occurs after the owner is disabled or
oThe distribution was made by beneficiaries after the owner’s death.
A distribution that meets these two requirements is tax and penalty free.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


Keep Learning

Be among the first to know when

IRA Rules