Why is a Roth Distribution being Taxed?

All contributions in a year are taxed by Roth IRAs. If income is distributed after age 59- 1/2, such income is not taxed. Part of a distribution taken by a taxpayer before attaining the minimum age of retirement and prior to the Roth IRA being existent for five years will be subject to tax. It may also get a 10% penalty. 

When is a Roth IRA Distribution subject to tax? 

A Roth IRA must exist for five complete years before any withdrawal can be made. That is according to the legislation in operation at the moment. In the event that either the taxpayer has not attained the age of 59-1/2 or the Distribution from a Roth IRA is yet to meet the five-year rule, then, earnings from it may be taxable. 

Earnings withdrawn in a manner that breaches the IRS withdrawal guidelines will be considered income and be taxed. Unless taxpayer's below the retirement age of 59-1/2 meet qualified exceptions, they may receive a 10% penalty on earnings withdrawn. 

Early withdrawals by taxpayers who have attained the age of 59-1/2 will be subject to tax if they do not meet the 5-year rule. On the contrary, they will not get the 10% penalty for early withdrawal. 

The ProWeb automatically calculates the taxable amount as well as the penalty (if applicable) the moment the preparer enters Form 1099-R. The 10% penalty is not assessed if there is a qualified exception for the early withdrawal. 

You can find a complete list of exceptions on the IRS Exceptions to Tax on Early Distributions.

Note: This is not tax advice. Rather, it is a general discussion of the Regulations of the IRS in regards to the taxing of Roth Distribution.

Additional Information:

IRS: Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)