Question Content AreaOver the years, Monica contributed $15,000 to a Roth IRA opened 10 years ago. The Roth IRA has a current value of $37,500. She is 54 years old and takes a distribution of $25,000. How much of the distribution will be taxable to Monica? a. $10,000 b. $25,000 c. $15,000 d. $0
For Roth IRAs, qualified distributions are tax-free. A distribution is considered qualified if it meets the following criteria: 1. The Roth IRA has been held for at least 5 years. 2. The account holder is at least 59½ years old, or the distribution is due to disability, a first-time home purchase (up to $10,000), or is made to a beneficiary after the account holder's death. In Monica's case, while the Roth IRA has been held for more than 5 years, she is only 54 years old, so the distribution is not qualified. However, Roth IRA contributions (the principal) can be withdrawn tax-free at any time. Monica contributed $15,000 to the Roth IRA, and she is taking a distribution of $25,000. The first $15,000 of the distribution is considered a return of her contributions and is not taxable. The remaining $10,000 is considered earnings. Since the distribution is not qualified, the $10,000 of earnings would be subject to taxes and potentially a 10% early withdrawal penalty. Therefore, the taxable amount of the distribution is **a. $10,000**.
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