Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,000 to her account. Whatamount of the distribution is taxable and subject to early distribution penalty?
A) $0.
B) $30,000.
C) $5,000.
D) $50,000.

Question

Quizplus · Accepted Answer

Withdrawals from Roth IRAs are generally tax-free and penalty-free, as long as certain conditions are met. One of those conditions is that the distribution must be a qualified distribution. To be qualified, the distribution must meet two requirements: the Roth IRA must have been open for at least 5 years, and the distribution must be made after age 59½, due to disability, or for a first-time home purchase.

In this case, Lisa withdrew $50,000 from her Roth IRA, but she has only contributed $20,000 over the years. The remaining $30,000 represents earnings on her contributions. Since Lisa established her Roth IRA 10 years ago and has exceeded both qualifying criteria, her distribution is considered a qualified distribution and is therefore tax-free and penalty-free. Therefore, the answer is B) $0.

Lisa, Age 45, Needed Some Cash So She Withdrew $50,000