Advanced Underwriting Consultants

Question of the Day – July 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client is taking a nonqualified distribution from his only Roth IRA.  The client has made regular contributions to the Roth, and rollover contributions from a converted traditional IRA.  How will distributions be treated?

Answer: Nonqualified distributions from a Roth IRA come out in the following order:

  • Regular contributions
  • Converted amounts
  • Earnings

Regular contributions are recovered federal income tax-free.  Converted amounts are also federal income tax-free.  However, converted amounts taken within five years of the conversion while the taxpayer is younger than age 59 ½ will potentially be subject to the 10% premature distribution penalty tax.

Distributions of earnings are income taxable, and also subject to the 10% premature distribution penalty tax.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.