Roth IRA Distribution Rules

What are the Roth IRA distribution rules for tax purposes?

Qualified distributions from a Roth IRA are not taxable and therefore you will not include them in the gross income on your tax return.

What is a qualified Roth IRA distribution?

A qualified Roth IRA distribution is any payment of distribution that meets the following requirements.

• It is made after the 5 year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

• The payment or distribution is made:
  • on or after the date you reach age 59 1/2

  • Because you are disabled

  • To a beneficiary or to your estate after your death, or

  • To pay up to $10,000 of certain qualified first time homebuyer amounts.

A distribution is not a qualified Roth IRA distribution if you receive it within the 5 taxable year period or you withdraw excess contributions or earnings on it before the duet date of your return.

What is the tax penalty on Roth IRA distributions?

A 10% additional tax is imposed on premature taxable distributions. Each conversion will have a separate 5 taxable year period before it is qualified.

It is important to remember that with Roth IRAs you can always have your original contributions distributed tax free even if the distribution is not qualified.

Example of Roth IRA Distribution Rules at work

You contributed $3,000 to y our Roth IRA in both 2003 and 2004. In 2006, you took a distribution of $6,200. The amount taxable (and potentially subject to the 10% additional tax) is $200 ($6,200-  $6,000). Had you withdrawn only $6,000 then none of the distribution from your Roth IRA would have been taxable nor subject to the 10% additional tax.