Question

Question 5 1 pts What is the taxable character of distributions that are made from a Roth IRA? Tax deferred income when converted to a traditional IRA Tax-free income if the distribution meets the holding period and qualified distribution requirements Capital gain income if the distribution meets the required holding period Ordinary income if the taxpayer fails to make required minimum distributions D Question 6 1 pts Which of following statements regarding a nonqualified distribution from a Roth IRA is NOT correct? O A distribution that consists of earnings will always be subject to the 10% penalty for that portion of the distribution. A distribution made before the 5-year period may avoid the 10% penalty if other conditions are A distribution that consists of conversion amounts may avoid the 10% penalty for the conversion portion. A distribution that consists of earnings will always be subject to income taxation.

Answer 1

Question 5 : The correct answer is "B" : Tax-free income if distribution meets the holding period and qualified distribution requirements

Reason : Earnings from a Roth IRA do not count towards income. When earnings are within the account, they are definitely not taxable and even when such contributions are withdrawn, they are tax free and penalty free unless the withdrawal is considered as non-qualified distribution.

Question 6 : The correct answer is "A" : A distribution that consists of earnings will always be subject to the 10% penalty for that portion of the distribution is not correct.

Reason : Although the penalty would generally apply, there are certain exceptions which have been provided that may exclude the distribution from the penalty and hence it is not correct to say that it will "always" attract a penalty of 10%.