How to Calculate the Tax on a Roth IRA Distribution

by Mark Kennan ; Updated April 19, 2017

Roth IRAs give investors the opportunity to save with after-tax dollars. If you take only qualified distributions from your Roth IRA, you will owe no income tax on the distributions, no matter how much you take out. However, if you take a nonqualified distribution, you may have to pay income taxes and an early withdrawal penalty on the earnings you withdraw. A qualified Roth IRA distribution meets two criteria: the account is at least five tax-years old and you are at least 59 1/2 years old, permanently disabled or taking out no more than $10,000 for your first home.

Step 1

Subtract the amount of contributions in your Roth IRA from the value of your distribution. If the amount of the contributions in the Roth IRA exceeds the amount of your distribution, your entire distribution is tax-free. However, if your contributions do not cover your distribution, the excess is taxable. For example, if you had $5,000 in contributions in your Roth IRA but you take out $11,000, subtract $5,000 from $11,000 to find that $6,000 of your contributions count as taxable income.

Step 2

Subtract the value of any early withdrawal penalty exemption from the amount of earnings you withdraw from your Roth IRA to figure the amount subject to the early withdrawal penalty. For this example, if you have $3,500 of qualifying post-secondary education expenses, subtract $3,500 from $6,000 to find only $2,500 is subject to the early withdrawal penalty.

Step 3

Multiply the portion of your Roth IRA distribution subject to the early withdrawal tax penalty by 0.1 to find the amount of the penalty. In this example, multiply $2,500 by 0.1 to find the penalty equals $250.

Step 4

Multiply the total taxable portion of your Roth IRA distribution by your marginal tax rate. The marginal income tax rate equals the highest income tax bracket you fall in based on your taxable income. For example, if you fall in the 19 percent tax bracket, multiply $6,000 by 0.19 to find you will owe $1,140.

Step 5

Add the early withdrawal penalty to your income taxes to find your total tax liability from your Roth IRA distribution. In this example, add $250 to $1,140 to find your tax liability from your Roth IRA distribution equals $1,390.

About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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