How are nonqualified Roth IRA distributions taxed?
For nonqualified distributions, contributions are always considered to be withdrawn first and come out tax-free, the earnings come out next and are taxed at ordinary income rates. If the owner is under 59 1/2, there is an additional 10% penalty on the taxable withdrawal unless certain conditions are met. Qualified distributions are tax and penalty free. A qualified distribution is a distribution, from a Roth IRA that has existed at least five years, to the Roth IRA owner who is at least 59 1/2.
