Lisa, age 46, needed some cash so she withdrew $58,000 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 $21,600 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Question

Quizplus · Accepted Answer

Because Lisa is over 59½ years old and the distribution was from a Roth IRA, the entire amount of the distribution is not taxable and not subject to early distribution penalty. The amount of contributions ($21,600) is always tax-free and penalty-free. The remaining amount, $36,400 ($58,000 - $21,600), is considered a qualified distribution because the Roth IRA has been open for at least 5 years. Therefore, it is not subject to tax or penalty.

Lisa, Age 46, Needed Some Cash So She Withdrew $58,000