Roth Distributions
Pre-59 1/2 distribution, Roth account ahs been open for 5+ years, I understand there is a 10% penalty on any earnings, does the client also pay income tax on these gains?
Pre-59 1/2 distribution, Roth account ahs been open for 5+ years, I understand there is a 10% penalty on any earnings, does the client also pay income tax on these gains?
Permalink Submitted by Alan Spross on Wed, 2008-06-04 19:11
Yes, since this would be a non qualified distribution in most cases. However, under the ordering rules for distributions, the earnings are only considered distributed after regular and conversion contributions. Most people therefore, unless they withdraw substantial amounts of their Roth, would be able to take such non qualified distributions tax and penalty free.
However, for conversions held under 5 years, the early withdrawal penalty does apply prior to age 59.5.