A 50-year-old taxpayer converts $100,000 from a Traditional IRA to a Roth IRA in Year 1. The Traditional IRA was funded entirely with deductible contributions. The taxpayer pays the tax from a separate savings account. Five years later (Year 6), the taxpayer withdraws $120,000 (the original conversion + $20,000 growth) from the Roth IRA. The taxpayer is 55 years old. What is the tax consequence of the withdrawal?

1. Analyze Distribution Layers: First $100,000 is Conversion Principal. Next $20,000 is Earnings.<br/>2. Conversion Principal: Tax-free (tax paid at conversion). Penalty-free if 5-year holding period met. (Year 1 to Year 6 = 5 years met).<br/>3. Earnings: Taxable and subject to 10% penalty unless 'Qualified'.<br/>4. Qualified Status: Must be 5 years AND (59.5, death, disability, first home). Taxpayer is 55. Not qualified.<br/>5. Result: Principal ($100k) is clean. Earnings ($20k) are taxed and penalized.