taxmap/pubs/p590-018.htm#TXMP25c33aa3
Are Distributions Taxable?(p65)

Is Roth Distributions a Qualified Distribution?  

taxmap/pubs/p590-018.htm#TXMP1fa5e6a8 Additional Tax on Early Distributions(p65)

Penalty, Early Distributions from IRAs and Plans

If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.

taxmap/pubs/p590-018.htm#TXMP183bedf6 Distributions of conversion contributions within 5-year period.(p65)

If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted (the conversion contribution) that you had to include in income. A separate 5-year period applies to each conversion. See Ordering Rules for Distributions, later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion contribution that you had to include in income.

The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion contribution is separately determined for each conversion, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See What Are Qualified Distributions, earlier.

For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2002, and makes a regular contribution for 2001 on the same date, the 5-year period for the conversion begins January 1, 2002, while the 5-year period for the regular contribution begins on January 1, 2001.

Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion contribution that you had to include in income because of the conversion.

You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion contribution in an earlier year. You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions.

taxmap/pubs/p590-018.htm#TXMP209d92d0 Other early distributions.(p66)

Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

taxmap/pubs/p590-018.htm#TXMP28dc808a Exceptions.(p66)

You may not have to pay the 10% additional tax in the following situations.

• You have reached age 591/2.
• You are disabled.
• You are the beneficiary of a deceased IRA owner.
• You use the distribution to pay certain qualified first-time homebuyer amounts.
• The distributions are part of a series of substantially equal payments.
• You have significant unreimbursed medical expenses.
• You are paying medical insurance premiums after losing your job.
• The distributions are not more than your qualified higher education expenses.
• The distribution is due to an IRS levy of the qualified plan.
• The distribution is a qualified reservist distribution.

Most of these exceptions are discussed earlier in chapter 1 under Early Distributions.

taxmap/pubs/p590-018.htm#TXMP5af5d528 Ordering Rules for Distributions(p67)

Ordering Rules for Distributions

If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much). Order the distributions as follows.

1. Regular contributions.
2. Conversion contributions, on a first-in-first-out basis (generally, total conversions from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion contributions into account as follows:
   1. Taxable portion (the amount required to be included in gross income because of conversion) first, and then the
   2. Nontaxable portion.
3. Earnings on contributions.

Disregard rollover contributions from other Roth IRAs for this purpose.

taxmap/pubs/p590-018.htm#TXMP6c086002 Aggregation (grouping and adding) rules.(p67)

Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows.

• Add all distributions from all your Roth IRAs during the year together.
• Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. Add this total to the total undistributed regular contributions made in prior years.
• Add all conversion contributions made during the year together. For purposes of the ordering rules, in the case of any conversion in which the conversion distribution is made in 2007 and the conversion contribution is made in 2008, treat the conversion contribution as contributed before any other conversion contributions made in 2008.

Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA.

Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose.

taxmap/pubs/p590-018.htm#TXMP3fde1974
Example.(p67)

On October 15, 2002, Justin converted all $80,000 in his traditional IRA to his Roth IRA. His Forms 8606 from prior years show that $20,000 of the amount converted is his basis.

Justin included $60,000 ($80,000 − $20,000) in his gross income.

On February 23, 2007, Justin makes a regular contribution of $4,000 to a Roth IRA. On November 7, 2007, at age 60, Justin takes a $7,000 distribution from his Roth IRA.

The first $4,000 of the distribution is a return of Justin's regular contribution and is not includible in his income.

The next $3,000 of the distribution is not includible in income because it was included previously.

taxmap/pubs/p590-018.htm#TXMP2903f391 How Do You Figure the Taxable Part?(p67)

How Do You Figure the Taxable Part?

To figure the taxable part of a distribution that is not a qualified distribution, complete Worksheet 2-3. taxmap/pubs/p590-018.htm#w15160x20

Worksheet 2-3. Figuring the Taxable Part of a Distribution (Other Than a Qualified Distribution) From a Roth IRA 1. Enter the total of all distributions made from your Roth IRA(s) (other than qualified charitable distributions or a one-time distribution to fund an HSA) during the year 1.              2. Enter the amount of qualified distributions made during the year 2.              3. Subtract line 2 from line 1 3.              4. Enter the amount of distributions made during the year to correct excess contributions made during the year. (Do not include earnings.) 4.              5. Subtract line 4 from line 3 5.              6. Enter the amount of distributions made during the year that were contributed to another Roth IRA in a qualified rollover contribution 6.              7. Subtract line 6 from line 5 7.              8. Enter the amount of all prior distributions from your Roth IRA(s) (other than qualified charitable distributions) whether or not they were qualified distributions 8.              9. Add lines 3 and 8 9.              10. Enter the amount of the distributions included on line 8 that were previously includible in your income 10.              11. Subtract line 10 from line 9 11.              12. Enter the total of all your contributions to all of your Roth IRAs 12.              13. Enter the total of all distributions made (this year and in prior years) to correct excess contributions. (Include earnings.) 13.              14. Subtract line 13 from line 12. (If the result is less than 0, enter 0.) 14.              15. Subtract line 14 from line 11. (If the result is less than 0, enter 0.) 15.              16. Enter the smaller of the amount on line 7 or the amount on line 15. This is the taxable part of your distribution 16.

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