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Posted by / 31-Jul-2020 13:10

Tax consequences of liquidating a roth ira

Because John has not had his Roth IRA for five years, the earnings (,000) will be subject to income tax.

The withdrawal will also be subject to the 10% penalty unless John qualifies for an exception.

To be qualified, a distribution must meet both of the following two categories of requirements: *For this purpose, all Roth IRAs of an individual are counted for determining the five-year period.

For example, if an individual established a Roth IRA at ABC Brokerage in 2017, and established a second Roth IRA at XYZ Brokerage in 2018, the five-year period begins in 2017.

This is true even if the 2017 contribution had been made in 2018 by the deadline of April 15, 2018.

The additional ,000 is attributed to nontaxable conversion assets.A Roth IRA, on the other hand, allows qualified distributions to be free from tax and penalties.The question is, which distributions are considered qualified? However, distributions on taxable conversion amounts may be subject to the 10% early distribution penalty.In 2018, John is 55 years old, and the balance in John's Roth IRA at that time is represented as follows: John wants to know the tax consequences should he distribute assets from his Roth IRA in 2018.Remember that assets are distributed in the following order: (1) participant contributions, (2) conversions and (3) earnings.

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According to the ordering rules, assets are distributed from a Roth IRA in the following order (once assets from one source run out, the assets from the next source are distributed): Under the ordering rules applicable to Roth IRAs, contributions are always deemed to be withdrawn first.