Not ALL ROTH IRA Withdrawals are Tax Free

By
Education & Training with Number Cruncher LLC

Not all Roth IRA withdrawals are tax-free. 

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. 

If you or someone you know is dealing with IRS problems, contact me at 702-469-9426 or candy@numbercruncherllc.tax.

Comments (7)

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Candy and thanks for the great information from you again.  I just let it set in there since I do not need the morning now.  Make it a great day!

 

 

Oct 27, 2021 08:04 AM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Good morning Candy! Great information to know. What you don't know CAN hurt you - especially with the IRS

Oct 27, 2021 09:13 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Candace, since I haven't gotten to the point of retirement quite yet, will delve into the details when it gets closer.

Oct 27, 2021 09:42 AM
Brian England
Arizona Focus Realty - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

The Roth IRA has always been my go-to and luckily I have not had to pull any money out of it and I don't plan on doing so until I am at least 59 1/2.

Oct 28, 2021 05:18 AM
CANDACE (Candy) STEVENS, EA
Number Cruncher LLC - Overton, NV
Helping Taxpayers Resolve IRS problems

Way to go Will Hamm and Brian England.  @hen you do pull money out, make sure you visit with your tax preparer and your financial advisor!

Nov 01, 2021 09:23 AM
CANDACE (Candy) STEVENS, EA
Number Cruncher LLC - Overton, NV
Helping Taxpayers Resolve IRS problems

Good Morning Joan.  Good idea.  Sometimes it's best to just wait!

Nov 01, 2021 09:24 AM
CANDACE (Candy) STEVENS, EA
Number Cruncher LLC - Overton, NV
Helping Taxpayers Resolve IRS problems

So very true Rocky Dickerson.  So very true on many counts!

Nov 01, 2021 09:25 AM