Definition of 'Non-Taxable Distribution'
There are a few key things to keep in mind when it comes to non-taxable distributions. First, the amount of the distribution that is tax-free is limited. For example, in the case of a Roth IRA, only the amount of contributions that have been made to the account can be withdrawn tax-free. Any earnings on those contributions will be subject to income tax.
Second, the tax treatment of non-taxable distributions can change if the account owner dies. In most cases, the entire amount of the distribution will be taxable to the beneficiary. However, there are some exceptions to this rule, such as when the beneficiary is a spouse or a minor child.
Finally, it is important to remember that non-taxable distributions are not the same as tax-deductible contributions. Tax-deductible contributions are made with pre-tax dollars, and they can be withdrawn from the account tax-free at any time. Non-taxable distributions, on the other hand, are made with after-tax dollars, and they are only tax-free under certain circumstances.
If you have any questions about non-taxable distributions, it is important to consult with a qualified tax advisor.
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