Are Taxes Paid on the Earnings? NO - (provided the earnings are taken as part of a qualified distribution). That's the best part of the ROTH IRA. Unlike a traditional IRA a tax deduction cannot be taken for the contributions made to a ROTH IRA. However, when the withdrawal is made there are no taxes on any of the earnings that the money has generated.

What is a Qualified Distribution? In order for earning to be tax free, they must first meet a five year holding period for the ROTH IRA. This period begins with the tax year for which the first contribution is made. After that, any earnings withdrawn for a qualified distribution reason are tax free and IRS penalty free. Qualified distributions include:
1. Distributions made on or after the date on which you attain the age 59 1/2
2. Distributions made to your beneficiary (or your estate) upon your death
3. Distributions attributable to your being disabled
4. Qualified first time home buyer distributions (up to $10,000)

Does the 10% IRS Premature Distribution Apply if Money is Withdrawn before age 59 1/2? The 10% IRS penalty does not apply to earnings withdrawn when taking any of the qualified distributions listed above. In addition, the 10% penalty is also waived for certain other distribution reasons. For these distributions, taxes on earnings will apply. Distributions that are subject to taxes, (on any earnings withdrawn) but not penalty include:
1. Substantially equal periodic payments 
2. Eligible medical expenses in excess of 7.5% of your adjusted gross income.
3. Medical insurance premiums for eligible unemployed individuals
4. Qualified education expenses, and Distributions taken within the first five years for any of these reasons; age 59 1/2, death, disability or first time home purchase
Distributions taken for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10% IRS penalty on any earning withdrawn.

What If Access to Money is Needed Now? A helpful feature of the ROTH IRA is that for non qualified distributions, original contribution amounts are returned first. Contributions (as opposed to earnings) are not subject to taxation or the 10% IRS premature distribution penalty when distributed. In other words, you can always get back your principal tax free and IRA penalty free for any reason.

When Do you Have to Start Taking Distributions From The ROTH IRA? You never have to take distributions from the ROTH IRA. That's another benefit of the ROTH IRA over traditional IRAs. Assets held in ROTH IRA are not subject to age 70 1/2 required minimum distributions.

What Happens in The Event of Death? The named beneficiary will receive the entire proceeds of the ROTH IRA. The manner in which the beneficiary receive the funds is determined by the election made by the beneficiary or beneficiaries within the guidelines of the law.

How are Funds Moved From A Traditional IRA to a ROTH IRA? The law only allows people (single or married) with a MAGI of $100,000 or less to convert or roll over their traditional IRA into a ROTH IRA. For a rollover or conversion to a ROTH IRA , the amount rolled over or converted will be subject to full taxation. However, the funds will not be subject to a 10% premature distribution penalty. Rollovers from a traditional IRA to a ROTH IRA are not subject to the one rollover per 12 month rule.

When Is the Contribution Deadline for Funding a ROTH IRA? ROTH IRAs for the taxable year can be opened and funded any time between January 1 and the date your tax return is due for the year, excluding extensions. This is normally April 15 or the following business day. ROTH IRA vs. Traditional IRA ( Use this link to go to a chart to compare IRA Types )

How Do You Open a ROTH IRA? It's  easy, just see one of Bow Mills Bank and Trust's professional and knowledgeable Personal Bankers.  Also, please feel free to ask an IRA representative to assist you in completing he worksheet to determine your maximum Allowable Contribution.