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Are distributions from my Roth IRA taxable?  Many people know and understand that when they take distributions from their traditional IRA or a 401(k) the distributions are taxable.  These distributions are taxable, and it makes sense because you contributed money to the traditional IRA or 401(k) without paying income tax on the contributions.  Thus, being taxed on the distributions would seem fair and equitable.  But what about a Roth IRA where you have already paid tax on the contributions you made to the Roth IRA?

Generally, you would not include in your gross income qualified distributions from a Roth IRA or distributions that are a return of your regular contributions to your Roth IRA.  Furthermore, distributions from a Roth IRA that you had rolled over tax free into another Roth IRA would generally not be included within your gross income, and thus not be subject to tax.

The above being stated, one must consider the basis of distributed property and know what distributions are considered qualified distributions.  When taking distributions from a Roth IRA, the basis of property being distributed is its fair market value as of the date of distribution.  This is the case regardless of whether or not the distribution from the Roth IRA is a qualified distribution. 

A qualified distribution from a Roth IRA could be any of the following: A distribution made after the five year period that begins the first taxable year a contribution was made to the Roth IRA and the distribution was made after you were 59.5 years old, made because you were disabled, made to a beneficiary or to your estate, or meets the requirements for “first home” exception. 

Are the distributions from a Roth IRA subject the 10% additional tax, such as early withdrawals from a 401(k)?  Distributions that are not qualified distributions may be subject to an additional 10% tax or penalty.  There are a number of exceptions that apply and thus could provide relief in regards to the 10% additional tax.  For example, if you used the distributions to pay certain medical expenses or for higher education expenses, you may not have to pay the additional 10%.  Further, when the IRS levies a Roth IRA, the additional 10% tax generally would not apply because the deemed distribution to the taxpayer was not necessarily a voluntary distribution to the taxpayer.

The above article was written by John McGuire, a tax attorney and business attorney at The McGuire Law Firm.  The McGuire Law Firm has offices in Denver, Colorado and Golden, Colorado.

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