4 Things You Should Know About Withdrawing From a Roth IRA

Written By Mary Beth Eastman
Last updated January 16, 2019

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December 21, 2018

Simple. Thrifty. Living.

A Roth IRA can be a great way to save for retirement. With the rules more flexible than a 401(k) or even a traditional IRA, it can also be a useful asset for making major purchases. However, there are still some things to know if you want to avoid any extra taxes or penalties. Here are 4 things to know about withdrawing from your Roth IRA.

Because you’ve already paid tax on what you add to your IRA, you’re welcome to withdraw any of those contributions at any time. The key is that only your contributions are penalty- and extra-tax free. Any earnings from the investment itself are subject to more stringent guidelines.

The general rule for Roth IRA withdrawals before the age of 59 1/2 is that any amount is subject to a 10% penalty and applicable taxes. However, depending on how long you’ve had the account for, you can potentially make a tax- and penalty-free withdrawal for the purchase of your first house. However, you can only use up to $10,000 for it.

If you’ve had the account for less than five years, you will still pay income taxes on your withdrawal but no penalty.

Furthermore, if you’ve had the account for longer than five years, you can make a penalty and tax free withdrawal of up to $10,000 for the purchase of a first home.

Unlike a 401(k), there is no official “loan” program with a Roth IRA. That means that you’re allowed to withdraw funds from the account without being obligated to pay them back.

While there is the benefit of adding to the nest egg, if you’re under 59 1/2 then you’re welcome to withdraw any of your contributions at any time. While you are free to withdraw contributions, the IRS placed limits on how much can be contributed in one year, most recently $5,500 per tax year.

Regardless of age, Roth IRAs are subject to a five year maturation period. Making withdrawals before the five year period is up can subject the withdrawal to both taxes and a penalty.

If you’re under 59 1/2 with a less than five year old account, then any withdrawal that doesn’t qualify for an exception like a first time home purchase will be taxed and penalized at 10%.

Roth IRA Age Penalties

If you opened a Roth IRA at age 58, then you’ll have to wait until age 63 before making withdrawals free of taxes and penalties. But, if your account is less than five years old but you’re over the age of 59 1/2, then you can make withdrawals that are only subject to applicable taxes. Also, no penalties will apply.

If you don’t yet have a Roth IRA, consider opening one online. The process is simple and starts you on your way to a valuable aspect of your retirement planning.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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