Non-Qualified Distribution

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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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That is, the penalty may apply to the portion of a nonqualified distribution paid from funds attributable to previously taxed components of qualified rollover contributions.
53) If a rollover occurs within twelve months of a prior rollover for the same beneficiary, the rollover will be taxed to the beneficiary as a nonqualified distribution.
If a distribution is made from a Roth IRA prior to this five-year period, it is a nonqualified distribution.
A taxpayer considering a nonqualified distribution from a section 529 plan may want to research whether the state in which he or she maintains an account still has a penalty; if it does, perhaps the taxpayer can roll the account over to a state without a penalty before making a nonqualified distribution.
A nonqualified withdrawal from a state with a penalty will subject the earnings portion of the nonqualified distribution to penalties at the Federal and state levels.
408A-6, Q&A-4, a nonqualified distribution made from the owner's contributions to the Roth IRA is tax-free.
Beginning in 2011, nonqualified distributions from HSAs and Archer MSAs will be subject to an excise tax of 20% (increased from 10% for HSAs and 15% for Archer MSAs).
1, the excise tax for nonqualified distributions from Health Savings Accounts will go from 10 percent to 20 percent.
New information includes new regulations governing required minimum distributions; catch-up contribution provisions for taxpayers age 50 or over; deemed IRAs under qualified retirement plans; expanded rollover options; estate tax rules and planning for large IRAs; new proposed rules regarding the valuation of life insurance contracts; treatment of nonqualified distributions from Roth IRAs; taxes and penalties that may apply to a Coverdell ESA; and instructions for completing Forms 5498, 1099-R, and 1099-Q.
The nonqualified distributions calculator is implemented using WebCalcs([R]) software from Torrid Technologies in Atlanta.
In addition, Roth IRA contributions can be withdrawn tax free at any time; nonqualified distributions are treated as made from contributions first.
The earnings on nonqualified distributions are subject to income tax and a 10 percent penalty.