Roth Individual Retirement Accounts
A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA. It can be either an account or an annuity. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.
Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.
A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA.
Are distributions taxable?
You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income.
Basis of distributed property.
The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution.
Withdrawals of contributions by due date.
If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.
What are qualified distributions?
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and the payment or distribution is:
Made on or after the date you reach age 59½,
Made because you are disabled,
Made to a beneficiary or to your estate after your death, or
One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
Additional Tax on Early Distributions.
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.
Distributions of conversion and certain rollover contributions within 5-year period.
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 (recapture amount). A separate 5-year period applies to each conversion and rollover.
Other early distributions.
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.
Exceptions. You may not have to pay the 10% additional tax in the following situations.
You have reached age 59½.
You are totally and permanently disabled.
You are the beneficiary of a deceased IRA owner.
You use the distribution to buy, build, or rebuild a first home.
The distributions are part of a series of substantially equal payments.
You have unreimbursed medical expenses that are more than 10% (or 7.5% if you or your spouse was born before January 2, 1950) of your adjusted gross income (defined earlier) for the year.
You are paying medical insurance premiums during a period of unemployment.
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.
Must you withdraw or use assets?
You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs
Minimum distributions.
You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs.