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

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Under what conditions are withdrawals from a Roth IRA tax-free?

Open for 3 years
Open for 5 years
Open for 10 years
Open for the duration of the account holder's life

The correct answer is: Open for 5 years

Withdrawals from a Roth IRA are tax-free under specific conditions that hinge on the age of the account holder and the length of time the account has been established. The primary condition for tax-free withdrawals of earnings is that the Roth IRA must be open for at least five years. This five-year rule applies from the time of your first contribution to any Roth IRA in your name, and it must be adhered to in order to qualify for tax-free treatment on earnings. Additionally, the account holder must be at least 59½ years old at the time of withdrawal to take out earnings without facing taxes or penalties. If these conditions are met, the account holder can withdraw both their contributions and earnings tax-free. While the duration of the account holder's life and the length of account ownership could affect other types of withdrawals, the specific qualifying timeframe for tax-free withdrawals of earnings distinctly emphasizes the five-year requirement. Thus, it is essential to understand that becoming eligible for tax-free withdrawals involves both a time component and an age milestone.