How Do You Take Money Out of a Roth IRA?

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A Roth individual retirement account (IRA) is a type of retirement savings/investment account that allows your money to grow free of taxation.

You can start an account as soon as you turn 18, and there are no minimum contributions required as long as you have a reported income. However, there are maximum contribution limits that increase with age, which is why it’s a good idea to start investing young. Roth IRAs are similar to traditional IRAs, with the primary difference being how the accounts are taxed. Roth IRAs, specifically, are funded using after-tax dollars. In other words, you’ve already paid taxes on the money you’re contributing to your account.

In return, your money grows tax-free, and when you withdraw your money upon retirement, you don’t have to pay any taxes.

Can I withdraw money from my Roth IRA?

The short answer is yes, you can take money out of a Roth IRA. Since you’ve already paid the taxes on the money you’ve contributed to your Roth IRA, you’ll be able to withdraw those contributions at any time, without penalty.

The key word being contributions.

Contributions equal the money you put into your account—not your investment earnings.

There are different and very specific distribution rules that apply to the investment earnings on your contributions. To withdraw investment earnings without owing income taxes or a 10% early withdrawal penalty, you’ll have to follow these specific rules.

How can I withdraw from my Roth IRA without penalty?

The rules of withdrawing from your Roth IRA penalty-free are based on two things:

  1. Your age
  2. How long you’ve owned the account

The five-year rule is used to determine whether or not your investment earnings will be tax-free. For your withdrawals to be both penalty and tax-free, the stipulations are as follows:

  • You must be 59 ½ years old
  • Your account must be a minimum of five years old (the five-year clock begins as soon as you make your first contribution)

What are the Roth IRA withdrawal exceptions?

If you are younger than 59 ½ years of age, but your Roth IRA has been opened for five years or longer, you won’t face income taxes—but will face the 10% penalty—if your withdrawal:

  • Is used to make a first-time home purchase (up to a $10,000 maximum)
  • Is used for qualified education expenses
  • Is used for qualified birth or adoption-related expenses
  • Is used for non-reimbursable medical expenses or health insurance while unemployed
  • You become disabled or pass away and the withdrawal is made to a beneficiary or an estate
  • The distribution is broken down into equal periodic payments

These exceptions can also apply to individuals who are both younger and have accounts less than five years of age. However, under those circumstances, they will be required to pay income tax on their investment earnings. The same goes for individuals who meet the age requirements but not the five-year requirement.

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.