Qualified Charitable Distribution (QCD)
Definition A distribution that is excludable from the distributee’s income, as a result of meeting the following requirements: It is made after the distributee reaches
March 3, 2009
It depends.
From a technical perspective, contributions include regular contributions, and Roth conversion contributions. For the purpose of this website, we use the term contribution to refer to regular contributions.
Regular contributions can be withdrawn at anytime, and will be tax and penalty free. For instance, if you made a Roth IRA contribution yesterday, and withdraw the amount today, it will be tax and penalty free. This is because no tax deduction was (or could be) permitted/allowed for the contribution. In sum, a contribution with funds that have already been taxed will be tax and penalty-free when withdrawn.
Roth conversion amounts can be withdrawn at anytime, and will be tax-free, because any taxes owed on the amount is assessed when the conversion occurs. However, the amount will be subject to the early distribution penalty, unless either of the following applies:
Important notes:
Note # 1
Distributions from Roth IRAs are considered to occur from ‘source of funding’, in a specific order. This is referred to as the ordering rules. Under these ordering rules, distributions occur from the following sources, in the order listed:
Roth Conversions: These will be tax-free when withdrawn, but will be subject to the early distribution penalty, unless the owner is at least age 59 ½ when the distribution occurs, the conversion has aged five years, or another exception applies
Earnings: These will be subject to tax, unless the distribution is qualified, and will be subject to the early distribution penalty-unless the distribution occurs when the owner is at least age 59 ½ or an exception applies.
Distributions occur from one category (bucket), only after amounts in the previous bucket- as listed in the ordering rules- have been exhausted. For instance, distributions can never occur from conversion amounts, until all contribution amounts have been withdrawn.
Note # 2
There are two five year-periods for Roth IRA distributions.
Definition A distribution that is excludable from the distributee’s income, as a result of meeting the following requirements: It is made after the distributee reaches
Who is an active participant? Active participant status affects an individual’s eligibility to take a deduction for a contribution to a traditional IRA on his/her
Definition An additional contribution that can be made to a retirement plan by a participant who is at least age-50 by the end of the
Definition A contribution made pursuant to a participant’s election to have a portion of his/her salary/wages contributed to his/ her employer sponsored plan rather than
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