The taxes on your distribution are calculated based on the Roth IRA Distribution Ordering Rules:
- Contributions (always tax-free and penalty-free)
- Conversions (taxable portion may be subject to penalty if under 59½ or <5 years)
- Earnings (taxable and possibly penalized if not a qualified distribution)
Conversions: Each Roth conversion has its own 5-year penalty clock. If you were under 59½, you would pay a 10% penalty on any conversion principal withdrawn before its specific 5-year anniversary. Since you are over 59½, that penalty is waived.
Earnings:
To have a Qualified Distribution (tax- and penalty-free earnings), you must meet BOTH of these criteria:
-
Be age 59½ or older AND
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Have met the 5-year holding period (The 5-year clock for your first contribution must have passed).
Since you meet the age requirement but not the 5-year holding requirement, the earnings portion is considered a Non-Qualified Distribution, making the earnings taxable as ordinary income. However, since you are over age 59½, the 10% penalty on those earnings is waived.
Use IRS Form 8606 to report Roth IRA distributions and track taxable portions.
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