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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408A(d), which apply to nonqualifying distributions from Roth IRAs, do not apply to nonqualifying distributions from a designated Roth account.
408A(d),which provide that the first distributions from a Roth IRA are a nontaxable return of contributions until all contributions have been returned, do not apply to nonqualifying distributions from a designated Roth account.
For nonqualifying distributions on or after the annuity starting date, the amounts are determined under Sec.
13) If a lump-sum nonqualifying distribution consists of employer securities, the net unrealized income thereon is (1) not includible in income, (2) not included in the basis of the securities, and (3) capital gain when realized in a subsequent taxable transaction.
nonqualifying distributions in excess of a base amount to dependent children under age 18 will be taxed at the parents' marginal tax rates (rather than the child's)).
Withdrawal penalties: Nonqualifying distributions are taxed at ordinary income tax rates.
Thus, if more than one account of a beneficiary is rolled over in a 12-month period, such action would constitute a nonqualifying distribution subject to taxation.
Nonqualifying distributions from a Roth IRA are not exempt from the early withdrawal penalty.