{"id":12489,"date":"2018-06-01T14:49:35","date_gmt":"2018-06-01T21:49:35","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=12489"},"modified":"2018-06-01T14:49:35","modified_gmt":"2018-06-01T21:49:35","slug":"investor-facts-qualified-distribution","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-qualified-distribution\/","title":{"rendered":"Investor Facts: What Is A Qualified Distribution?"},"content":{"rendered":"

A qualified distribution is money taken\u00a0from a tax-advantaged account, such as an\u00a0individual retirement account (IRA), workplace\u00a0401(k) or a college savings plan.<\/p>\n

People save money in tax-qualified accounts because they expect to take a distribution later, typically\u00a0in retirement for living expenses. If the account is tax-qualified the removal of money is considered a qualified distribution.<\/p>\n

A qualified distribution\u00a0generally refers to distributions coming from a tax-qualified account, such as an IRA or 401(k)<\/a>.<\/p>\n

\"\"<\/p>\n

Qualified\u00a0distributions may or may not be taxable.\u00a0As the term is commonly applied to\u00a0retirement accounts, it is important to note the differences between pre-tax and post-tax contributions and how they are treated at distribution, when money is paid\u00a0out to the owner of the account.<\/p>\n

Pre-tax accounts:\u00a0<\/strong>Let’s explore the standard taxation angle first. Distributions are held to be qualified typically when they come from an account where a tax break is\u00a0applied to\u00a0contributions and taxes on the growth of those\u00a0contributions is\u00a0deferred. An example is a 401(k) plan at work.<\/p>\n

At the time of a qualified distribution of funds back into the investor’s pocket, the amount paid out is subject to federal and state income taxes. Penalty taxes can be applied if the\u00a0investor is\u00a0under the minimum retirement age, although there are\u00a0exceptions.<\/p>\n

Post-tax accounts:<\/strong>\u00a0Money removed\u00a0from a Roth account, whether in a\u00a0401(k) or IRA, also is\u00a0considered a qualified distribution, though it is\u00a0generally not taxable since the investor already paid income taxes<\/a> on those contributions.<\/p>\n

There are specific requirements to ensure that a Roth withdrawal is a qualified distribution, some age-related and some related\u00a0to the age of the Roth account itself.<\/p>\n

College 529\u00a0plans:<\/strong> Other accounts unrelated to retirement can\u00a0generate qualified distributions. Here, however, taxation is not as much a concern if\u00a0the distribution meets certain requirements. A 529 college savings plan is a good example.<\/p>\n

In order for a 529 plan distribution to be qualified, the funds must be used toward higher education expenses of the beneficiary. If the expenses meet this test, they are considered to be qualified distributions and escape taxation. If they do not meet the requirement, appropriate taxes on the distribution are applied.<\/p>\n

Bottom line, an investor who sees the term qualified distribution should recognize that there are going to be specific rules for taking a withdrawal from that investment account and be ready to dig further into the details.<\/p>\n

MarketRiders, Inc. is a registered investment adviser.\u00a0 Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.\u00a0 Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and\/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.<\/i><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

A qualified distribution is money taken\u00a0from a tax-advantaged account, such as an\u00a0individual retirement account (IRA), workplace\u00a0401(k) or a college savings plan. 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