Non-Qualified Distributions. If you do not meet the requirements for a qualified distribution, any earnings you withdraw from your ▇▇▇▇ ▇▇▇ will be included in your gross income and, if you are under age 59 1⁄2, may be subject to an early distribution penalty. However, when you take a distribution, the amounts you contributed annually to any ▇▇▇▇ ▇▇▇ Account will be deemed to be removed first, followed by conversion contributions made to any ▇▇▇▇ ▇▇▇ on a first-in, first-out basis. Therefore, your non-qualified distributions will not be taxable to you until your withdrawals exceed the amount of your annual contributions and your conversion contributions. However, the 10 percent early distribution penalty may apply to conversion contributions distributed within the five-year period beginning with the year in which the conversion occurred. These “ordering rules” are complex. If you have any questions regarding the taxation of distributions from your ▇▇▇▇ ▇▇▇, please see a competent tax advisor.
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Sources: Traditional Individual Retirement Custodial Account Agreement, Traditional Individual Retirement Custodial Account Agreement