How are Roth IRA withdrawals taxed?

Industry Observer with Green Krist CPA PLLC 34463

Some withdrawals are taxable.

Even worse, some can be socked with a 10 percent early withdrawal penalty tax, and this can happen even when there’s no income tax hit.

 Any withdrawals from any of your Roth accounts are federal-income-tax-free qualified withdrawals if you, as a Roth IRA owner, 

  • are age 59 1/2 or older, and
  • have had at least one Roth IRA open for over five years.

 Such withdrawals are usually state-income-tax-free too. Good!

 You must pass both the age and the five-year tests to have a qualified withdrawal.

 The five-year period for determining whether your withdrawals are qualified starts on January 1 of the first tax year for which you make a Roth contribution. It can be a regular annual contribution or a conversion contribution.

 A non-qualified withdrawal is potentially subject to both federal income tax and the 10 percent early withdrawal penalty tax. The only exceptions are 

  • when the special first-time home purchase provision applies, or
  • when the account owner (that would be you) is disabled or dead.

 If you have a Roth and want to take a non-qualified withdrawal, make sure you know the tax consequences. Green Krist, CPA  specializes in assisting taxpayers with IRS and North Carolina Department of Revenue issues in the greater Raleigh, North Carolina area.

Comments (1)

Dick Betts
REALTOR® The Villages, Florida

Great information, thank you, working in a retirement community I need to stay up to date on IRA's, 1031 Exchanges as folks reach this phase of life!

Oct 05, 2021 06:39 AM