Part 1 Retirement Income and Social Security question: earnings taxed

Part 1Retirement Income and Social Security

Nell, 62, opened her first Roth IRA in 2022 and contributed $18,000. In 2025 she withdrew the whole $23,000 balance. How are the $5,000 of earnings taxed?

A Tax-free, since contributions exceed half the balance
B Tax-free, since she is over age 59½
C Taxable as income, but not subject to the 10% additional tax
D Taxable and subject to the 10% additional tax

Show the answer and explanation

Answer: C. Taxable as income, but not subject to the 10% additional tax

A Roth distribution is qualified only if it is made after the 5-year period beginning January 1 of the first year a Roth contribution was made (here, not until 2027) and after age 59½, death, disability or a first home purchase. Nell's withdrawal is nonqualified: her $18,000 of contributions come out first tax-free, and the $5,000 of earnings are taxable. She is over 59½, so the 10% additional tax does not apply. Source: IRC 408A(d)(2), 72(t)(2)(A)(i); Pub. 590-B (2025), Distributions from Roth IRAs. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Treating age 59½ alone as enough for a qualified Roth distribution.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.