Qualified Distributions

• When you take a qualified distribution from a Roth IRA, you get to take out all that you want from the account without having to pay any taxes on the distribution. In order to take such a distribution, you must be either 59 1/2 years of age or suffering from a permanent disability. In addition, at least five years must have elapsed since the start of the year you opened your Roth IRA. Finally, if at least five years have elapsed, you can take a qualified distribution of up to $10,000 for a first home.
  
  

Nonqualified Roth Distributions

• In the event that you do not satisfy both parts of the qualified distribution requirements, the IRS has separate rules for your distribution depending on whether you take out contributions, earnings or both. The IRS ordering rules allow you to remove all contributions before any earnings, which benefits you because you do not pay taxes or penalties on the distribution of contributions, even though it is not a qualified distribution. After removing all contributions from your Roth IRA, you have to take out the earnings, which are subject to income taxes and the early withdrawal penalty.
  
  

Early Withdrawal Penalty

• Early withdrawals of Roth IRA earnings are subject to income taxes and a 10 percent early withdrawal penalty. If you meet one of the exceptions, which are the same as the exceptions for traditional IRAs, you can avoid the early withdrawal penalty, but you still have to pay the income taxes. Exceptions include doctor and dental bills over 7.5 percent of your adjusted gross income, health insurance while unemployed, college costs and an IRS levy on the account.
  
  

Still Must Report

• All Roth IRA distributions must be recorded on your income tax return. This is true even if you take a qualified distribution on which you owe no income taxes. To file a qualified distribution, simply report the entire amount of the distribution as a nontaxable IRA distribution on Form 1040 or Form 1040A. If you take a nonqualified distribution, you have to file Form 8606, which tells you if any earnings were withdrawn. If so, you also have to file Form 5329 to calculate your early withdrawal penalty.