Question

Assuming the taxpayer has owned a Roth IRA account for over 5 years, qualifying distributions include a $10,000 distribution ______. (Check all that apply.)

a) For a first-time home purchase
b) For education expenses
c) For medical expenses
d) Upon reaching age 70 1/2

Answer 1

Qualifying distributions from a Roth IRA owned for over 5 years include $10,000 for a first-time home purchase. Other expenses like education or medical may not qualify for the $10,000 exemption and age-related distributions are tax-free at age 59 1/2 provided the 5-year holding period is met.

Step-by-step explanation:

Assuming the taxpayer has owned a Roth IRA account for over 5 years, qualifying distributions include a $10,000 distribution for a first-time home purchase. According to IRS guidelines, Roth IRA distributions can be made tax- and penalty-free for specific reasons, one of which is up to $10,000 for buying, building, or rebuilding a first home. However, distributions for education expenses, medical expenses, or upon reaching age 70 1/2 are not specific to the $10,000 exemption and may have different rules for being considered qualified.

For education expenses and medical expenses, while Roth IRA distributions can be made, such distributions may be subject to taxes or penalties if not meeting certain criteria such as avoiding penalties for higher education expenses or unreimbursed medical expenses that surpass a certain percentage of adjusted gross income.

Once the Roth IRA owner reaches age 59 1/2, not 70 1/2 as mentioned for traditional IRAs, and as long as the 5-year holding period has been satisfied, distributions are typically tax-free and without penalties. It is essential to note that different rules apply between Roth and traditional IRAs when it comes to distributions and tax implications.