Intuit Academy Tax Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

What happens if money is withdrawn from a Roth IRA before retirement age?

It is always tax-free

It may be subject to taxes and a 10% early withdrawal penalty

When money is withdrawn from a Roth IRA before retirement age, the general rule is that while contributions can be withdrawn tax-free at any time because they have already been taxed, withdrawals that include earnings may be subject to taxes and a 10% early withdrawal penalty if the account holder is under age 59½ and does not meet certain qualifying conditions. This means that if you access the earnings portion of the account before retirement age without qualifying for an exception, it will result in both income tax liabilities and possibly a penalty.

This is a crucial aspect of the Roth IRA. Unlike traditional IRAs, where withdrawals are taxed as ordinary income, the tax treatment of Roth IRA withdrawals is more nuanced. Therefore, the response correctly highlights that early withdrawals could lead to taxes and penalties based on the earnings taken out, while contributions remain untaxed.

Get further explanation with Examzify DeepDiveBeta

It is fully taxable

It can only be withdrawn after age 55

Next Question

Report this question

Download Intuit Academy Tax Practice Exam PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy