Roth IRAs: Taxation of Distributions ON DEMAND

Overview

A Roth IRA has certain tax characteristics that incentivize eligible taxpayers to establish and fund their own Roth IRAs whenever possible. Unlike a traditional IRA, contributions to Roth IRAs are never deductible. However, if an individual satisfies certain requirements, qualified distributions from a Roth IRA are tax-free. An eligible individual can make contributions to his or her Roth IRA at any age if the individual has eligible compensation. Additionally, the owner can leave amounts in his or her Roth IRA if he or she is alive without taking any distributions, as Roth IRA owners are not subject to the required minimum distribution (RMD) rules that apply to traditional IRAs. Although non-spouse beneficiaries of Roth IRAs must take RMDs, such distributions are not taxable if qualified; and only the earnings are taxable if the distribution is nonqualified.

Highlights

The primary ways in which Roth IRAs can be funded. What makes a Roth IRA distribution qualified. The ordering rules for Roth IRA distributions and when they should be used. The tax reporting requirement that an IRA custodian should meet for a Roth. IRA distribution.

Prerequisites

None.

Designed For

CPAs, EAs, and other tax professionals.

Objectives

The primary ways in which Roth IRAs can be funded. What makes a Roth IRA distribution qualified. The ordering rules for Roth IRA distributions and when they should be used. The tax reporting requirement that an IRA custodian should meet for a Roth IRA distribution.

Preparation

None.

Notice

None.