Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

Which of the following is required to avoid taxes on a Roth IRA withdrawal?

1. Account opened for at least 3 years

2. Account opened for at least 5 years

3. Account holder must be over 60 years old

4. Account must be a funded account for 10 years

The correct answer is: Account opened for at least 5 years

To avoid taxes on a Roth IRA withdrawal, the account must be opened for at least five years to qualify for tax-free distributions. This five-year period starts on January 1 of the year for which the first contribution was made to any Roth IRA. This rule ensures that the account has had enough time to grow tax-free and allows for distributions of both contributions and earnings to be taken without incurring taxes, provided other conditions are met. In addition to the five-year requirement, there are other criteria to consider for qualified distributions, such as the account holder being at least 59½ years old or meeting certain exceptional circumstances. However, the key requirement that directly pertains to avoiding taxes relates to the duration the Roth IRA has been open. The other options present conditions that are not necessary to meet the tax-free withdrawal requirement, such as an account holder's age being a factor in the context of the five-year rule or suggesting different minimum duration requirements. Thus, the correct understanding hinges on the five-year duration being central to tax-free status when withdrawing from a Roth IRA.