For the most part, Roth IRA withdrawal rules are more flexible than those for a 401(k) or even a Traditional IRA. Because you already paid taxes on the money you’ve contributed to a Roth IRA, you can withdraw your contributions any time, without tax and penalty. The keyword here is contributions — the money you put into the account. Different rules apply to conversion amounts and investment earnings.
If you are under the age of 59 ½, amounts converted must satisfy a 5-year period to avoid being subject to the 10% penalty.
To distribute investment earnings without owing income taxes and a 10% penalty, you’ll have to meet specific criteria. You must meet one of the following reasons: attaining age 59 ½, death, disability or first-time home buyer (maximum $10,000) as well as you must have satisfied the 5-year period. The 5-year period means its been 5 years since you have contributed to your first Roth IRA. The clock for the 5-year period begins as of January 1st of the year for which a contribution was made. As an example if you make a contribution on July of a calendar year, the clock started as of January 1st of that year.
If you are younger than 59½ and have had your account for less than 5 years...
Generally, you’ll owe income taxes and a 10% penalty if you withdraw earnings from your account. You can avoid the penalty, but not the income taxes, if you meet one of the following exceptions:
- You’re withdrawing up to $10,000 as a qualified first-time home buyer.
- The withdrawal is for qualified education expenses.
- The withdrawal is for unreimbursed medical expenses in excess of 7.5% of your adjusted gross income for the year.
- The withdrawal is for health insurance premiums while you’re unemployed.
- The withdrawal is due to disability.
- The withdrawal is made to a beneficiary or your estate after your death.
- You decide to take substantially equal payments, which basically locks you into taking at least one distribution per year for at least five years or until you turn 59½, whichever comes last.
- The withdrawal is due to an IRS levy.
- You made the withdrawal when you were a qualified reservist.
If you are younger than 59½ and have had your account for more than 5 years...
You can avoid taxes and penalties on earnings you withdraw from your account if you meet one of the following exceptions:
- You’re withdrawing up to $10,000 to buy your first-time home.
- The withdrawal is due to disability.
- The withdrawal is made to a beneficiary or your estate after your death.
If you are older than 59½ and have had your account for less than 5 years...
You’ll owe income tax but no penalty on earnings that you withdraw.
If you are older than 59½ and have had your account for more than 5 years...
You can withdraw earnings with no tax and penalty.
