- You must report IRA distributions on your income taxes in the year that you take the distribution. IRA distributions do not count as earned income so you do not have to pay Federal Insurance Contributions Act taxes, more commonly called FICA taxes.
- Unless you have made nondeductible contributions to your traditional IRA, the entire amount of your distribution must be reported as taxable income. If you did make nondeductible contributions, the portion of your withdrawal that comes from nondeductible contributions does not count as taxable income.
- Qualified withdrawals--those taken after the account has been open for five years and you are at least 59 1/2 years old--can be taken from your Roth IRA tax-free. Early withdrawals of contributions are also tax-free. However, if you take an early distribution of earnings, you must include that amount as taxable income and pay a 10 percent early withdrawal penalty.
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