Withdrawal rules for IRA Roths are generally more flexible than for traditional IRAs and 401 (k). Can I withdraw money from a Roth IRA without penalty?
Contributions and earnings
The Roth IRA payout rules vary depending on whether you are collecting premiums or investment returns. Contributions are the money you pay into an IRA and your earnings are your profits. Both grow on your account without tax.
You can withdraw your Roth IRA contributions at any time, for any reason, without taxes and penalties. This is because you pay contributions in dollars after tax, so you have already paid taxes on that money.
Earnings withdrawals work differently. These withdrawals may be subject to income taxes and 10% penalties, depending on the age and duration of the account.
The 5-year Roth IRA Rule
Basically you can withdraw your earnings without taxes and penalties if:
- You are at least 59 ½ years old and
- It has been at least five years since you first joined the Roth IRA (“5 Years Rule”)
- The 5 year rule applies regardless of age when you open the account. For example, if you are 58 when you make your first deposit, you still have to wait until 63 to avoid taxes.
- The clock starts ticking on January 1 of the year in which you first contributed to any Roth. Because you have a premium by April 15 of the next tax year, your five years may not be five full calendar years.
- For example, if you make a contribution to the Roth IRA in early April 2020 – but you set it for the tax year 2019 – you will have to wait until January 1, 2024, to withdraw your Roth IRA profits without tax, assuming you have at least 59½ years old.
- For Roth IRA conversions, the 5-year clock starts on January 1 of the year in which the conversion took place. For inherited IRAs, Roth begins when the first owner made his first deposit – not when the account is transferred.
Quick summary: Early Roth IRA withdrawals
If you want to withdraw contributions: After-tax contributions – commonly referred to as the “base” – can be withdrawn at any time, for any reason, without taxes and penalties for withdrawal.
If you want to withdraw your earnings: You must meet two conditions for qualified distribution to avoid both taxes and a 10% penalty for earlier withdrawals. First, you must have a Roth IRA account for at least five years, a clock that starts ticking at the beginning of the year of the first contribution. Secondly, you must be at least 59½, disabled, dead (distribution is made by heirs) or use up to $ 10,000 to buy your first home.
Early withdrawal of Roth IRA cartridges
This can give you peace of mind knowing that Roth IRA cartridges can be touched. They are not a substitute for an emergency fund or excuse to live beyond your means, but if things get worse, they can be a source of quick cash.
If you take an early withdrawal from the Roth IRA, contributions come first, which is a rare move by the IRS to make your life easier. You don’t have to worry about taxes – or accounting for which part of your distribution comes from earnings and which contribution – unless you pull out more than you have contributed.