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  Monday November 20, 2017

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WHEN ARE DISTRIBUTIONS TAXED?
Learn even more about this topic with the Encyclopedia of Personal Finance™

It is important to remember that your traditional IRA consists of both the contributions you have made over the years and the earnings on your contributions. The earnings include reinvested interest and dividends that have accrued over the years on the contributions you have made, as well as the appreciation of your investment. When you make a withdrawal from your IRA, it may include portions of your original contributions.

Distributions from deductible IRAs are fully taxable, while distributions from non-deductible IRAs are partially taxable. That part of a distribution attributable to non-deductible contributions (after-tax dollars) is not taxed: taxes were already paid.

Here is the breakdown of what is taxable upon withdrawal in an IRA:

? All earnings are taxable.

? All tax-deductible contributions are taxable.

When you take distributions, you must separate nondeductible contributions from earnings, and nondeductible contributions from tax-deductible contributions. The IRS has formulas that can separate these amounts.

Of course, distributions that are taken before age 59? will be hit with a 10 percent penalty unless they meet the special exceptions in the tax code.

Now, some closing words on IRA distributions.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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