Dec 1, 2007

Roth IRA’s - Distributions Taxable or Not?

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.

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