Are Distributions Taxable?(p64)

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.

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 or rollover an amount from a qualified retirement plan 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 or rolled over (the conversion or rollover contribution) that you had to include in income. A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions, later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion or rollover 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 or rollover contribution is separately determined for each conversion and rollover, 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, 2009, and makes a regular contribution for 2008 on the same date, the 5-year period for the conversion begins January 1, 2009, while the 5-year period for the regular contribution begins on January 1, 2008.

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 or rollover contribution that you had to include in income because of the conversion or rollover.

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

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.

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.
• The distribution is a qualified disaster recovery assistance distribution.
• The distribution is a qualified recovery assistance distribution.

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

You may have chosen to withdraw an economic stimulus payment that was directly deposited to your Roth IRA in 2008. If you chose to withdraw any or all of the payment, that portion of the payment is treated as neither contributed nor distributed from your IRA. The amount withdrawn is not included in your income and is not subject to additional tax or penalty. The withdrawal must have been made by the due date for filing your 2008 tax return, including extensions. For most people that would have been April 15, 2009.

If the withdrawal was made in 2009, you will receive a 2009 Form 1099-R showing the amount of the distribution. Include the distribution on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. Do not make an entry on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b, but enter "ESP" in the space next to the line.

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

Disregard rollover contributions from other Roth IRAs for this purpose.

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 and rollover contributions made during the year together. For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2009 and the conversion or rollover contribution is made in 2010, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2010.

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.

On October 15, 2005, 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, 2009, Justin made a regular contribution of $5,000 to a Roth IRA. On November 7, 2009, at age 60, Justin took a $7,000 distribution from his Roth IRA.

The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income.

The next $2,000 of the distribution is not includible in income because it was included previously.

To figure the taxable part of a distribution that is not a qualified distribution, complete Worksheet 2-3. taxmap/pubs/p590-018.htm#en_us_publink1000231077

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 (other than a repayment of a qualified disaster recovery assistance distribution) 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 or a one-time distribution to fund an HSA) 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.