Qualified and Non-Qualified Roth IRA Distributions.
Qualified Roth IRA Distribution:
A qualified distribution from a Roth IRA is one that meets certain requirements set by the IRS. These requirements are:
- The account owner must be at least 59½ years old.
- The account must have been open for at least five years.
- The distribution is made for one of the following reasons:
- Permanent disability
- First-time home purchase up to $10,000
- Qualified higher education expenses
- Qualified medical expenses
- Distributions to a designated beneficiary after the death of the account owner
If a distribution meets all of these requirements, it is considered qualified and will not be subject to taxes or penalties.
Non-Qualified Roth IRA Distribution:
A non-qualified distribution from a Roth IRA is any withdrawal that does not meet the requirements for a qualified distribution. This includes withdrawals made before the account owner is 59½ years old, withdrawals made before the account has been open for five years, and withdrawals that are not made for one of the qualified reasons listed above.
Non-qualified distributions from a Roth IRA are subject to taxes and penalties. The taxes are imposed on the earnings portion of the distribution, while the penalty is 10% of the amount withdrawn.
Here is a table summarizing the differences between qualified and non-qualified distributions from a Roth IRA:
|Account owner’s age
|At least 59½ years old
|Younger than 59½ years old
|At least 5 years
|Less than 5 years
|Reason for withdrawal
|One of the qualified reasons listed above
|Not one of the qualified reasons listed above
|Not subject to taxes
|Subject to taxes on earnings
It is important to note that there are some exceptions to the early withdrawal penalty for non-qualified distributions from a Roth IRA. These exceptions include:
- Withdrawals made to pay for medical expenses that are not covered by insurance.
- Withdrawals made to pay for qualified higher education expenses.
- Withdrawals made to pay for qualified first-time home purchase expenses.
- Withdrawals made to pay for qualified disaster relief expenses.
If you are considering taking a distribution from your Roth IRA, it is important to understand the tax and penalty implications. If you are not sure whether a distribution will be qualified, you should consult with a certified tax advisor or financial planner.