What is the tax treatment of a Roth IRA withdrawal at age 60 with contributions of $5,000 earning $2,000 over time?

The tax treatment for a Roth IRA withdrawal at age 60, when the account has matured and contributions have been made for at least five years, is favorable due to the nature of Roth IRAs. Contributions to a Roth IRA are made with after-tax dollars, which means that the contributions themselves are not subject to tax upon withdrawal.

At age 60, the account holder is both over 59½ and has met the five-year holding requirement for their contributions. Therefore, the entire amount of the withdrawal — consisting of both the $5,000 in contributions and the $2,000 in earnings — can be withdrawn without incurring any taxes or penalties.

This makes the correct answer stand out, as it confirms that none of the distribution is included in income and there are no penalties applied to the withdrawal due to the favorable tax treatment of Roth IRAs in this scenario. The benefits of early tax-free growth and withdrawals of contributions and earnings also highlight why this option is appropriate for individuals who qualify.