Understanding Roth IRA Withdrawal Rules
You've probably been told that having a Roth IRA is a good way to plan for your retirement. And up until this point you have been told much about the benefits to be gained from this type of investment tool. However, you've also been told about the restrictions you may be faced with and the potential penalties that may be imposed. It is important that before you decide to invest that you focus on understanding Roth IRA withdrawal rules and what they could mean to you.
Roth IRA Age Limit
You are free to withdraw any money you have contributed into your account from your Roth IRA anytime you need it. Since the contributions you've made into your account are after taxes, when you withdraw them they will be tax and penalty free. The restrictions are imposed when you begin to withdraw earned money from your Roth IRA before you reach the age of 59 and a half or before the account is 5 years old. If any withdrawal of earned income is made before these two dates then you will be subject to penalties and taxation.
Roth IRA Exceptions
There are of course, always exceptions to the rule. You may be able to avoid paying those penalty payments if your withdrawal is for any of the following circumstances:
1.) You use the withdrawal to pay for a first-time home purchase.
2.) You use the withdrawal to pay for qualified education expenses.
3.) You are at least 59 and a half.
4.) You become disabled or if you pass away it will go to your beneficiary.
5.) You use the withdrawal to pay for unreimbursed medical expenses or for health insurance if you're unemployed.
6.) The distribution is made in substantially equal periodic payments.
You will also be able to avoid taxes if you have reached the age limit of 59 and a half or you've had your account for five years or more. It's important in understanding Roth IRA withdrawal rules that you may be able to avoid the penalties under these circumstances but not the taxes.
If You Are Over 59 And A Half
For those account holders who are over the age of 59 and a half but have not reached 70 and have had your account for more than 5 years, they will be expected to pay taxes but there will be no penalty imposed. If your account is over 5 years old you will be able to make your withdrawal without fear of any tax payment or penalties.
If You Are Over 70 And A Half
If your account is less than five years, your withdrawal will be subject to taxes but no penalties. But for those accounts over five years there will be no taxes or penalties.
It should be pointed out that while understanding Roth IRA withdrawal rules is important before you open your account it is also necessary for you to keep abreast of all the changing rules and regulations that may change from time to time. It's also important that you always ask questions before you make a decision about how you will re-purpose any money that has been set aside for your retirement. The IRS and your financial institution take IRAs very seriously and it's essential that you know exactly how they will view any activity on your account.
This site offers information designed for educational purposes only. You should not rely on any information on this site as a substitute for professional medical advice, diagnosis, treatment, or as a substitute for, professional counseling care, advice, diagnosis, or treatment. If you have any concerns or questions about your health, you should always consult with a physician or other health-care professional.