Bible Money Matters

Christian personal finance

Menu
    • About
    • Archives
    • Contact
    • Close
  • Making Money
      • Popular Articles

        • 50 Ways To Make Money: Maximizing, Creating And Increasing Your Income
        • 10 Weird And Unconventional Ways To Make Money
        • Making Money With A Blog (e-Book)
        • 10 Places To Sell Or Trade Your Unused (Or Broken) Electronics
        • Ways To Make Extra Money Series: 20 More Income Generating Ideas From Our Readers
        • Making Side Income Can Help Blunt The Impact Of Becoming A One Income Family
        • Earn Cash Back With Discover it® Credit Card
      • Recent Articles – Making Money

        • Best Sites Like Fiverr To Make Money As A Freelancer
        • 13 Of The Best Independent Contractor Jobs
        • 25 Of The Best Gig Economy Jobs
        • How To Make Money Blogging: Turn A Blog Into A Business
      • Categories

        • Making Money
        • Investing
        • Retirement
        • Jobs & Work LIfe
        • Money
        • Income
    • Close
  • Saving Money
      • Popular Articles

        • 50 Easy Ways To Save Money Every Month
        • 10 Weird And Unconventional Ways To Save Money
        • 10 Practical Ways To Save Money And Increase Your Net Worth
        • How To Save Money On Just About All Of Your Regular Monthly Bills
        • Ways To Watch TV Without Paying An Arm And A Leg For Cable TV
        • Save Money On Your Hospital Bill - Just By Asking
      • Recent Articles – Saving Money

        • How To Save $100k In 7 Practical Steps
        • Stairs App Review: Save And Invest To Earn 4-6% Interest
        • Honey Review: Save Money Automatically When You Shop Online
        • 9 Convincing Reasons Why You Need An Emergency Fund
      • Categories

        • Saving Money
        • Frugality
        • Planning
        • Finance
        • Saving For Retirement
        • Savings Accounts
    • Close
  • Banking
      • Best Rates For 2019

        • Best Credit Cards
        • Best Savings Accounts
        • Best Mortgage Rates
        • Best CD Rates
        • Best Brokerages
        • Free Credit Scores
      • Recent Reviews

        • TradeStation Review: Commission Free Stock And ETF Trades
        • Firstrade Review: Commission Free Trades on Stocks, Crypto, And Options
        • Cadre Real Estate Investing Review: Commercial Real Estate Investing
        • Axos Self Directed Trading Review: Invest, Trade Stocks For Free
      • Categories

        • Bank & Software Reviews
        • Investing
        • Credit
        • Banking
        • Mortgage
        • Insurance
        • Family Budget
    • Close
  • Recommended
  • Video
    • Close

Roth IRA Withdrawal Rules

By Peter Anderson 11 Comments - The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited December 15, 2011.

Share
Pin1
Tweet
Share
1 Shares

The Roth IRA is a wonderful investment option that many people take advantage of every year mainly because of it’s tax free growth and because it allows you to diversify your tax situation at retirement if you also invest in some pre-tax investment types like a 401k or IRA.

While the ideal situation is to max out your contributions to your Roth IRA every year, and then not take any money out until retirement, sometimes you might find yourself in a situation where you need money now – before the usual distribution age of 59 1/2.  Luckily the Roth IRA is one of the more flexible retirement account types and withdrawing your contributions (or the money you put in) can be done tax and penalty free at any time.

You do need to be careful, however, that you understand when and how you are allowed to withdraw your earnings (the interest you earn on your contributions) – before your retirement age, because if you’re not careful you could be subject to a 10% early withdrawal penalty by the IRS, and be taxed at your normal tax rate.

Roth IRA Withdrawal Rules

Quick Navigation

  • When Can You Make  A Roth IRA Withdrawal?
    • Roth IRA 5 Year Rule
  • Qualified Reasons For Roth IRA Distribution
  • Other Exceptions to 10% Penalty
  • Order Of Roth IRA Distributions
  • Conclusion – Don’t Withdraw Until Retirement

When Can You Make  A Roth IRA Withdrawal?

Again, as mentioned above you can usually make a withdrawal of your principle contributions at any time.  The earnings off of your principle can’t be withdrawn until you reach the age of 59 1/2 without paying a 10% early withdrawal penalty.    No one wants to pay that.  There is also one proviso on being able to withdraw your earnings after 59 1/2 – it’s called the 5 year rule.

Roth IRA 5 Year Rule

You can only withdraw your earnings from  your Roth IRA at 59 1/2 and have them count as qualified distributions if it has been at least 5 years since your Roth IRA account was opened.  For example, if you opened your account at 56, you would need to wait until you were 61 with withdraw any earnings on your principle.

Qualified Reasons For Roth IRA Distribution

Here are the main reasons you can receive a distribution from your Roth IRA without taxes or penalties:

  • You are age 59½ or older.
  • The distribution was made to your beneficiary after your death.  (too bad for you – you’re dead!)
  • You are using the money to buy a home, and are a first-time homebuyer ($10,000 lifetime maximum per account)
  • You’re disabled.

Other Exceptions to 10% Penalty

Sometimes you may still need to take a distribution from your Roth IRA for a non-qualifying reason.  You can still get around the 10% early withdrawal penalty (while still paying income taxes) if you find yourself in any of these situations:

  • You have un-reimbursed medical expenses that exceed 7.5% of your adjusted gross income.
  • You are paying medical insurance premiums after losing your job.
  • The distributions are not more than your qualified higher education expenses.  (pay for schooling!)
  • The distribution is due to an IRS levy of the qualified plan.
  • The distribution is a qualified reservist distribution.
  • The distribution is a qualified disaster recovery assistance distribution.
  • The distribution is a qualified recovery assistance distribution.

Order Of Roth IRA Distributions

When withdrawing your money the distributions come out in this order according to IRS publication 590

  1. Regular contributions.
  2. Conversion and rollover contributions, on a first-in-first-out basis (generally, total conversions and rollovers from the earliest year first). Take these conversion and rollover contributions into account as follows:
    • Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the
    • Nontaxable portion.
  3. Earnings on contributions.

So as you can see the order of distributions is setup in order to help you avoid paying fees or penalties. Your contributions (tax and penalty free) come out first.  Next come conversion or rollover amounts followed by earnings on your contributions – which could be assessed penalties if not a qualified distribution.

Conclusion – Don’t Withdraw Until Retirement

So as you can see there are ways that you can withdraw money from your Roth IRA without having to worry about paying taxes or penalties on your money. The question remains, however, as to whether or not it’s a good idea.  The whole point of a retirement account is to have the money going in, growing tax free using the power of compound interest – and withdrawing the money short circuits that whole process.    My suggestion?  Do your best not to take any money out, but if you do, make sure it’s for a qualified reason.

Good luck!

Have you taken  an early withdrawals from your Roth IRA?  Have you had to pay any penalties or taxes on that money?  Have you considered using it to buy your first home or pay for your or your children’s education? Tell us your thoughts in the comments.

Related Posts

  • 2010 Roth IRA Conversion Rules

    Over the past week we've been writing quite a bit about retirement accounts, which ones are better for different situations, and talking about what the…

  • What Are The Rules For Inheriting A Roth IRA?

    It is important to know the rules of of an inherited Roth IRA because it can trigger both estate taxes and income taxes.

  • Borrowing From Your Roth IRA

    Can you borrow money from your Roth IRA? The decisive answer is yes! ...and no. Find out why.

Share
Pin1
Tweet
Share
1 Shares
Last Edited: 15th December 2011 The content of biblemoneymatters.com is for general information purposes only and does not constitute professional advice. Visitors to biblemoneymatters.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.

This article is about: Investing, Retirement

About Peter Anderson

Peter Anderson is a Christian, husband to his beautiful wife Maria, and father to his 2 children. He loves reading and writing about personal finance, and also enjoys a good board game every now and again. You can find out more about him on the about page. Don't forget to say hi on Pinterest, Twitter or Facebook!

Comments

    Share Your Thoughts: Cancel reply

  1. Robyn Davis Sekula says

    Thanks very much for making this so simple. We posted a link to it on our blog.

    Reply
    • Peter Anderson says

      Glad it was so helpful. Thanks for the link!

      Reply
  2. Jenna says

    Thanks for all this information. I’m not planning on withdrawing anything from my Roth IRA but was intrigued to learn that you can if you’re a first time home buyer. I’ve joked with friends about buying my dream retirement / vacation home before buying my first everyday home. Do you have more information on this?

    Reply
    • Peter Anderson says

      Early Roth IRA withdrawals for the purchase of a first home can be done up to a $10,000 maximum lifetime per account. You can use the benefit, or the benefit can be used for your children or grandchildren. However, the $10,000 limit is always in effect, regardless of who the money is used for.

      Reply
      • Jenna says

        What if it’s a couple buying their first house? Can they each take out $10,000?

        Reply
  3. Lance says

    “You can still get around the 10% early withdrawal penalty (while still paying income taxes)…”

    So am I understanding correctly, if you withdraw after-tax contributions (principal only) for education, you would avoid the 10% penalty, but would have to pay income taxes (a second time)?

    Reply
  4. David/moneycrashers says

    I think the penalties are too steep to eventhink about withdrawing early.

    Money invested in a Roth IRA neds to be money that you KNOW you won’t need. Barring some sort of serious emergency of course.

    Reply
  5. Greg says

    The Roth IRA is a really good retirement tool that should be used for just that…retirement. There are some semi-complex rules that make it different than a Traditional IRA, but withdrawing funds from any retirement account should be a last resort only.

    Great article.

    Reply
  6. Lance says

    Anybody know the answer to this?

    If you withdraw after-tax contributions (principal only) for education, you would avoid the 10% penalty, but would have to pay income taxes (a second time)?

    Reply
    • rotvic says

      Lance,
      Not sure if you are still looking for this one…. I was searching for an answer and found the perfect place….
      “You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).”
      http://www.irs.gov/publications/p17/ch17.html#en_US_publink1000172864
      Hope this helps…

      Reply
      • Lance says

        Perfect
        Thanks rotvic!

        Reply
Previous Post: Will The 2001 Bush Tax Cuts Be Extended, Made Permanent Or Allowed To Expire?
Next Post: 3 Things You Can Do To Simplify Your Life In 24 Hours
Discover Investment Platforms

Popular Posts

  • 21 Easy Ways To Earn Free Amazon Gift Cards
  • 10 Best Free Tax Filing Services And Software Online
  • 21 Apps That Pay You Real Money Fast
  • 17 TV Apps And Live TV Streaming Services To Watch TV Free
  • 30 Legit Online Jobs That Pay Well
  • 37 Easy Ways To Get Free Gift Cards
  • How To Get Free Stock
  • 40 Easy Ways To Get Free Money Fast
  • 21 Places To Read Free Books Online
  • 24 Legit Online Jobs
  • 17 Best Work From Home Jobs: A List Of Legit Online Jobs That Pay Well

Recent Posts

  • How To Save $100k In 7 Practical Steps
  • How to Save Money When Remodeling A Home
  • How To Hire A Contractor For Your Remodeling Project
  • Remembering 9/11 Years Later: Where Were You On That Fateful Day?
  • TradeStation Review: Commission Free Stock And ETF Trades
  • Firstrade Review: Commission Free Trades on Stocks, Crypto, And Options
  • Cadre Real Estate Investing Review: Commercial Real Estate Investing
  • Best Sites Like Fiverr To Make Money As A Freelancer
  • Axos Self Directed Trading Review: Invest, Trade Stocks For Free
  • 30 Quotes About Easter And Resurrection: He Is Risen!

Disclaimer

The information contained in BibleMoneyMatters.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation.

In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.

Amazon and the Amazon logo are trademarks of Amazon.com, Inc. or its affiliates.

We respect your privacy: Privacy Policy.

Thanks for visiting!

Bible Money Matters - Seen On These Sites and more..
Bible Money Matters is a personal finance, entrepreneurship and investing community. Give more, save more and live more.

Copyright © 2023 · Bible Money Matters | Sitemap | Advertise | Privacy Policy