When you take a distribution from a Roth IRA, the distribution is either a qualified distribution or it is a nonqualified/early distribution. If the distribution is qualified then the portion of the distribution that is the contribution is NOT taxable and the earnings on that distribution are NOT taxable. However, if the distribution is nonqualified/early distribution, the portion of the distribution that is the contribution is NOT taxable but any earnings on that distribution will be taxable and will also be subject to a 10% penalty tax unless you qualify for one of the exceptions. See pages 30-31 of pub 590B under the heading, "exceptions" for additional information.
Per IRS pub 590B, A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements:It is made AFTER the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit AND The payment or distribution meets ONE of the following requirements:
- Made on or after the date you reach 59 ½
- Made because you are disabled
- Made to a beneficiary or to your estate after your death
- Meets the requirements listed under, first home, up a 10,000 lifetime limit
Additionally, if you made any conversion contributions to your Roth IRA or if you made a rollover contribution from a qualified retirement plan, to your Roth IRA, a separate 5 year period applies. "For example, If a calender year taxpayer makes a conversion contribution on February 25, 2016 and makes a regular contribution for 2015 on the same date, the 5 year period for the conversion begins January 1, 2016, while the 5 year period for the regular contribution begins on January 1, 2015." Please refer to page 30 of pub 590B under the headings, "what are qualified distributions?" and "distributions of conversion and certain rollover contributions within 5 year period" for additional clarification. https://www.irs.gov/pub/irs-pdf/p590b.pdf
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