Taxpayer an age 45 participant in his employer’s simplified employee pension, resigned to take a new job and received a $20,000 complete distribution from his designated Roth account in the plan. All his contributions and the contributions of his employer—a total of $12,000—were allocated to the Roth account. How much of the distribution, if any, must taxpayer include in his income?

In this scenario, the taxpayer received a $20,000 distribution from a designated Roth account within a Simplified Employee Pension (SEP) plan. The key factors to consider are the contributions made and the tax treatment of Roth accounts. 1. **Contributions and Earnings**: The taxpayer and employer contributed a total of $12,000 to the Roth account. The remaining $8,000 of the distribution represents earnings on those contributions. 2. **Qualified Distribution**: For a distribution from a Roth account to be qualified and tax-free, it must meet two criteria: - The account must have been held for at least five years. - The distribution must be made after the account holder reaches age 59½, becomes disabled, or for a first-time home purchase (up to $10,000). 3. **Non-Qualified Distribution**: Since the taxpayer is 45 years old, the distribution does not meet the age requirement for a qualified distribution. Therefore, the earnings portion of the distribution is subject to taxation. 4. **Taxable Amount**: The $8,000 in earnings is taxable because the distribution is non-qualified. The original contributions of $12,000 are not taxable, as they were made with after-tax dollars. Therefore, the taxpayer must include $8,000 in his income for tax purposes. Additionally, since the distribution is non-qualified and the taxpayer is under 59½, it may also be subject to a 10% early withdrawal penalty on

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