In short
Distributions from a Roth individual retirement account (IRA) are treated as coming first from regular contributions, then from conversions in the order made, and finally from earnings.
Key takeaways
- Regular contributions can be withdrawn at any time free of tax and penalty.
- Converted amounts withdrawn within 5 years of the conversion, before age 59½, face the 10% additional tax.
- Earnings are tax-free only in a qualified distribution.
Where it's tested
TCP: Retirement Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer has $90,000 in traditional IRAs, of which $9,000 represents nondeductible (after-tax) contributions. The taxpayer converts $10,000 to a Roth IRA. How much of the conversion is taxable?