Roth IRA Withdrawal Rules

Many people invest in the Roth IRA because it offers tax free growth, tax free withdrawals during retirement, and tax diversification while contributing to the retirement account.

I know I’m all about “tax free”! Unfortunately though, there are times when you end up needing the money you’ve put in your Roth IRA before you retire.

Of all the retirement account options you have, the Roth IRA is one of the most flexible in that it does allow you to make withdrawals of money you contributed at any time, without hefty early withdrawal penalty fees or tax penalties, under certain conditions.

If you make an ineligible withdrawal from your Roth IRA before you reach retirement age, you could end up paying a 10% early withdrawal penalty.

The last thing you want do is give more to the IRS than they deserve.

Sorry, IRS. I don’t mind paying what is owed to you, but I’d rather not give you a dime more.

We can still be friends, right?

Understanding Roth IRA Withdrawals

For the most part, you can withdraw the money you personal contributed to a Roth IRA at any time without taxes or penalties. You’ve already paid taxes on the money you contribute to a Roth IRA so you don’t need to pay tax on that money again when it’s taken out.

You cannot withdraw any of the earnings your contributions have made without penalty until you reach the age of 59 ½ and have had your Roth IRA for at least 5 years.

If you opened an IRA at the age of 58, normally you could begin receiving distributions from it at the age of 59 ½ but you’ll need to wait until you’re 63, five years after opening it, before you can pull any earnings from your Roth IRA penalty and tax free.

As with any rule, there are exceptions to withdrawals and distributions for Roth IRAs.

Qualified Roth IRA Distributions

A qualified distribution is a withdrawal from a Roth IRA that will be taken tax and penalty free. Qualified distributions are made after the age of 59 ½ and after the account has been opened for at least 5 years. Other qualified distributions may be taken if you become disabled, or for your first home. If you use money from your Roth IRA toward the cost of your first home, or the first home of your children or grandchildren. You can take up to $10,000 per Roth IRA account. Payments to a beneficiary after your death are considered qualified distributions, as well.

Non-Qualified Roth IRA Distributions

A non-qualified distribution is a withdrawal of money from your Roth IRA which are subject to taxes and/or early withdrawal penalties. Most non-qualified distributions will be taxed as income, and charged a 10% early withdrawal penalty (don’t be generous to the IRS), except for the following exceptions which are only subjected to income tax but not the 10% penalty:

  • Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income
  • Payment for medical insurance premiums after you lose your job
  • Distribution is due to an IRS levy
  • Distributions are less than your qualified higher educational expenses for you or for your spouse, children or their descendants.

Should You Take Money from Your Roth IRA?

Just because you can make penalty and tax free withdrawals from your Roth IRA doesn’t mean it’s a good idea! It’s kind of like going to the Chinese Buffet. Just because you can get your fourth plate of General Tso’s chicken, doesn’t mean you should! (Although, I will admit that the picture above is pretty enticing) While it may not cost you as much to take money from a Roth IRA when compared to other retirement accounts, it still has a potential negative effect on your long term retirement savings goals.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions apply.

Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

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Comments | 2 Responses

  1. Working Mom of 2 says

    In “The Gospel of Roth- The Good News About Roth IRA Conversions and How They Can Make You Money” by John Bledsoe it clearly states in the book that NO ANALYSIS is needed and that everyone should convert to a Roth IRA regardless of income. There is NO risk! The IRS is giving us a year to recharacterize or “undo” the conversion. This book gives the ins and outs for Roth IRAS! It really helped answer all my questions.

  2. nena seiler says

    my husband died more than ten years ago at age 58. he had a small ira rollover and roth rolled from the ira that i have not transferred out of his name. i understood that the funds did not have to be withdrawn until he would have been 70 1/2, which is 2 more years, since i’m the surviving spouse. the financial institution where the accounts were established back in the 90s is now owned by another hugh bank. after being in contact with both financial institutions all these years, getting his deceased statements and watching the money grow, the firm just informed me (when i requested an account be set up in my name) the beneficiary for the roth account is his estate since no beneficiary was listed. they set up an account in my name and transferred the traditional ira to me. also, there’s no estate since everything we ever owned was set up as joint ownership with survivorship, tod/pod accounts, joint tenants, sole beneficiary designations and there were no debts. (my husband was a fanatic about doing anything necessary to avoid any kind of legal expense, including probate, so i’m especially shocked there’s no beneficiary but it’s my word against theirs). they say they can only discuss/communicate with the executor/administrator of the estate (which i’ve told them does not exist — also i believe insurance policies and retirement accounts are exempt from probate). In my recent research, i find that only a surviving spouse has until the decedent’s age of 70 1/2 to take out any funds (which has been what I’ve been told in all my conversations over the years with both the original and current firms and nobody ever said anything about an estate being involved). what I learned, though, that if anyone other than the spouse is the beneficiary, the account should have been distributed many years ago and is now subject to a 50% TAX PENALTY for not being removed. IS THIS TRUE FOR A ROTH IRA? I have been totally disabled since 97 at age 50 and my husband died in september 2000. I live on social security income so attorneys and cpas are hardly in my budget. i haven’t talked with legal services. while the sum in the roth account is meager, it’s substantial to me. i was trying to get these accounts transferred on advice from doctors that my health is now extremely compromised and this is the only thing left to get in order. thanks in advance for any answers and/or suggestions you offer.

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