Non-Qualified Distribution

Non-Qualified Distribution

A distribution from an IRA, 401(k), education savings plan, or similar vehicle that is subject to income tax when it otherwise would not be. Generally speaking, a distribution is non-qualified when one makes it before a certain age (for a retirement plan) or in excess of a certain amount (for an education plan). Non-qualified distributions may also be subject to excise taxes.
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Once an investor turns 65, however, non-qualified distributions are taxed penalty-free, just like 401(k) distributions.
Instead of following ordering rules, non-qualified distributions from designated Roth accounts generally consist of a pro-rata portion of after-tax funds (i.
Non-qualified distributions of any amount attributable to the qualified rollover are considered an investment in the contract, or recovery of basis, and not subject to early withdrawal penalties.
Withdrawals from Roth IRAs that do not meet the requirements for qualified distributions are includible in income to the extent of earnings on contributions; however, these non-qualified distributions are treated as made from contributions first and then from earnings.
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