Question

Lisa, age 45, needed some cash so she received a $50,800 distribution from her Roth IRA. At the time of the distribution, the balance in the Roth IRA was $201,600. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,400 to her account. What amount of the distribution is taxable and subject to early distribution penalty?

Answer 1

The amount in Lisa's IRA to the extent of contributions can be withdrawn without attracting tax and penalty-free.

Therefore any amount in excess of the contribution made is subject to tax & penalty

Amount subject to tax & penalty = 50,800-20,400

= $30,400

Answer 2

Calculation:

1. Lisa's Roth IRA Basics:

• Total in account: $201,600

• She put in $20,400 herself (contributions)

• The rest ($181,200) grew from investments (earnings)

• 
  

2. Withdrawal Rules Simplified:

• Taxes if the account is <5 years old (hers is 10 years, so no taxes)

• 10% penalty if she's under 59.5 (she's 45, so penalty applies)

• She can always take out her original $20,400 tax/penalty-free

• Anything beyond that comes from earnings, which usually triggers:

• 
  

3. The Distribution Breakdown:

• Total taken out: $50,800

• First $20,400 = her original money (safe)

• Remaining $30,400 = earnings (penalty applies)

Short Answer:

• Taxable Amount: $0

• Penalty Applies To: $30,400