Are Roth IRA Distributions Taxed? How To Avoid Penalties and Taxes on Roth IRA Distributions

Can your Roth IRA become taxable? Are distributions from your Roth IRA taxed? If you don’t follow two very specific rules, you could incur taxes and penalties on your Roth IRA distribution. That is what we are going to discuss in this weeks, Your Financial EKG™ blog.

Roth IRA’s are supposed to be completely tax free. “SUPPOSED TO BE” is the key statement in that sentence. Roth IRA’s can become taxable and penalized if you don’t follow two specific rules. Those rules are the “5 Year Rule” and the “Under 59.5” Rule. Let’s dive into both:

Roth IRA 5 Year Rule:

The 5 Year rule says that you must wait 5 years before taking earnings out of your Roth IRA after your first contribution or conversion. You must also be over the age 59.5 to avoid penalties. SO, in plain english: to take investment earnings out of your Roth IRA without owing taxes or penalties, you must be 59.5 or older and held the account for at least 5 years. This is basically an IRS dictated waiting period for Roth IRA income and distributions. The 5 year rule only applies to the first contribution or conversion, not subsequent Roth IRA conversions or Roth IRA contributions. If you are over the age 59.5 and you do your first Roth IRA conversion, the 5 year rule still applies.

For example, if you put $6,000 in your Roth IRA for the first time and it grows to $12,000, you must wait 5 years before you can take out the $6,000 in earnings AND you must be over age 59.5 to not get penalized on that distribution.

Age 59.5 Rule

I know we explained this above, but you must be over the age 59.5 before you can take distributions, inside or outside the Roth IRA 5 year rule, to avoid penalties. Why 59.5? I have no idea. Just a number Congress came up with. Who celebrates their 59.5 birthday? Again, no idea!

So, in short, YES your Roth IRA can become taxable and penalized if you are not careful. You want to follow these very specific rules to keep your Roth IRA tax free. That is the whole purpose of a Roth IRA. Tax free retirement income! I hope you have enjoyed this blog. Please contact me using the links below if you have any further questions.
Buy Our Book:

Click Here For More retirement planning Videos:

**Free Retirement Download: The Roadmap to Retirement:**

**To schedule your virtual retirement and investment consultation with Drew, please select a day & time that works best for you: **

**Visit our Website: **

**Please make sure you talk with your CPA, Financial Advisor, Retirement Planner, or Investment Advisor Representative, before implementing any content from this channel. All videos are for informational and educational purposes only. None of the content, comments, responses, information, or any other item on this channel constitutes financial advice or recommendations. Please call Pearl Wealth Group at 813-807-5060 to go through your Retirement Income, Retirement Investments, or Retirement Plan in more detail.**

Pearl Wealth Group
Drew Blackston, CRC® & RFC®
Office: 813-807-5060
Info@pearlwealthgroup.com

Getting you to Retirement, through Retirement, & protecting YOUR ability to stay in Retirement!

#retirementplanning #retirement #financialfreedom

**More Retirement Information Here: ** 🧐

**Meet Your retirement planning Team: ** 😎

**Worried That Your Retirement Strategy Is Missing Something: ** 🤔…(read more)

LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

Are Roth IRA Distributions Taxed?

Roth IRA distributions are subject to taxes and penalties, depending on when they are taken and the purpose of the withdrawal. Roth IRAs are a type of retirement savings account that allows people to save money on a tax-free basis and withdraw it without paying taxes.

When it comes to taxation of Roth IRA distributions, the rules are fairly straightforward. Generally speaking, contributions to a Roth IRA are not taxed, and neither are the earnings on these contributions. However, when it comes time to make a withdrawal from the account, the rules change.

If the withdrawal is taken before the age of 59 ½, then the distribution is subject to taxes and a 10% early withdrawal penalty. The 10% penalty is waived if the withdrawal is taken for certain reasons such as a first-time home purchase, college expenses, or medical expenses.

If the withdrawal is taken after the age of 59 ½, then the distribution is not subject to taxes. However, if the Roth IRA has been open for less than five years, then the earnings portion of the distribution may be subject to taxes.

The best way to avoid taxes and penalties on Roth IRA distributions is to wait until the age of 59 ½ before making any withdrawals. This will ensure that the distribution is not subject to taxes, and that the 10% early withdrawal penalty is avoided. Additionally, if the Roth IRA has been open for five years or more, then the earnings portion of the distribution will not be subject to taxes.

By understanding the rules for Roth IRA distributions, it is possible to ensure that the distributions are not subject to taxes or penalties. This will help to ensure that the money saved in the Roth IRA is available for retirement and other long-term goals.