• Even non-taxable Roth IRA distributions must be reported on your tax return.tax forms image by Chad McDermott from Fotolia.com
  
  Roth IRAs, or individual retirement accounts, offer an after-tax retirement savings alternative to traditional IRAs, which are tax-deferred accounts. Because holders of Roth IRAs can take qualified withdrawals tax-free at retirement, people who expect to pay a higher rate of income tax at retirement than in the current year benefit most from them. In order to take advantage of the tax benefits offered by Roth IRAs, account holders need to know the rules on Roth IRA distributions.
  
  

Qualified Roth Distributions

• Roth IRAs allow qualified distributions at any time, regardless of purpose. To preserve the intent of Roth IRAs being retirement accounts, however, the IRS sets strict guidelines as to which distributions count as "qualified" distributions. To take a qualified distribution, the person taking the withdrawal must be at least 59 1/2 years old and the account must be at least five years old, as counted from Jan. 1 of the first tax year contributions were made. Distributions of Roth IRA conversions have a separate five-year requirement: the money must be in the account for five years counted from Jan. 1 of the tax year the conversion was made. For example, even if a Roth IRA account has been open since 2000, if a conversion was made in the 2010 tax year, that rollover money could not be distributed as a qualified distribution until Jan. 1, 2015. Withdrawals that count as a qualified distribution are withdrawn tax-free.
  
  

Non-Qualified Roth Distributions

• Contributions not meeting the criteria to be a qualified distribution may be subject to a 10-percent early withdrawal penalty and income taxes. When a non-qualified withdrawal is taken, the contributions the IRS considers first are any which are qualified. These are tax free and penalty free. Once these contributions have been exhausted, earnings which are then withdrawn are typically subject to income taxes and a 10-percent early-withdrawal penalty, unless an exception applies. Exceptions that waive the 10-percent penalty, but not income taxes on the earnings, include medical expenses above 7.5 percent of the account holder's adjusted gross income and higher education expenses, which include both college and vocational schools. If an account meets the five-year rule, both the 10-percent penalty and income taxes are waived in the event of a permanent disability or if the account holder takes out up to $10,000 to purchase a first home. If the five-year requirement is not met, only the 10-percent early-withdrawal penalty is waived in those two cases.
  
  

Tax Reporting

• All Roth IRA distributions must be reported on your taxes even if they are qualified withdrawals that result in no tax liability. If you have only qualified withdrawals, you can use form 1040 or form 1040A and report the amount of the distribution as a nontaxable IRA withdrawal. If you have early withdrawals, you must first use form 8606 to figure how much of your withdrawal comes from contributions and how much comes from earnings. If you withdraw earnings early, you must complete form 5329 to figure any early-withdrawal penalty you owe. You must report the penalty using form 1040.