Roth IRA’s are becoming very popular these days due to the fact that account distributions are normally not subject to income tax. But wait! There are restrictions to non-taxability of Roth IRA distributions. Here are the qualifications to make distributions not subject to tax:
- Distributions are made after the 5-year period beginning with the first tax year for which a contributions was made and;
- occurs on or after the taxpayer attains age 59 1/2
- the taxpayer becomes disabled
- the estate or beneficiary of the account owner following death or,
- comply with requirements for first-time homebuyer exception to the 10% penalty for early distributions.
Now, distributions can be made at any time. Those not made within the limits above are tax free up to the amount of regular after-tax contributions made. Withdrawals of accumulated earnings may be taxable and subject to the 10% penalty for early distributions. Remember that Roth IRA contributions are not tax-deductible.