* Ordering rules apply to nonqualified distributions
There is a 20% penalty on nonqualified distributions
from a health savings account (HSA) before age 65.
The taxable portion of nonqualified distributions
from your Roth IRAs is subject to the same 10 percent penalty rules that apply to traditional IRAs.
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.
In addition, Roth IRA contributions can be withdrawn tax free at any time; nonqualified distributions
are treated as made from contributions first.
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.
Taxed under Annuity Rules
are includible in income to the extent attributable to earnings (remember, you have basis in your contributions) and are subject to the 10 percent penalty tax applicable to early withdrawals, unless an exception applies.
The plan administrator or other responsible party must track deferrals to the plan (the after-tax amounts), earnings in the plan (the pre-tax amounts), and distributions (nonqualified distributions
are pro rata distributions, so both pre-tax and after-tax balances are affected by a distribution and the beginning of the five-year holding period.
Note: this treatment differs from the taxation of nonqualified distributions
from Roth IRAs, in which nonqualified distributions
are treated as a return of contributions (and thus not includible in gross income) until all contributions have been returned as basis.
The earnings on nonqualified distributions
are subject to income tax and a 10 percent penalty.