Intuit Academy Tax Practice Exam

What is the minimum time a Roth IRA must be opened for distributions to be qualified?

1. Three years

2. Five years

3. One year

4. Ten years

The correct answer is: Five years

To achieve qualified distributions from a Roth IRA, the account must be held for a minimum period of five years. This rule is established to ensure that the funds have matured and that the account holder has stored enough time in the account before taking distributions. The five-year holding period begins on January 1 of the tax year for which the account holder first contributes to any Roth IRA. This means that if an individual makes a contribution to a Roth IRA, they must wait five tax years before they can take a distribution of earnings that will be considered qualified and, therefore, not subject to income tax. Qualified distributions also require that the account holder is either over age 59½, becomes disabled, or uses the funds for a first-time home purchase (up to a $10,000 lifetime limit). If the distributions do not meet these criteria, they may be subject to taxes and potential penalties despite the five-year rule being satisfied. Other timeframes such as three years, one year, or ten years do not align with IRS regulations regarding qualified distributions from a Roth IRA, making them incorrect in this context.