Roth IRA Withdrawal Rules

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Roth IRA contribution withdrawals are always tax and penalty-free. However, if you pull from your Roth earnings too early, you’ll likely have to pay a penalty or taxes, unless you qualify for an exception.

Find out the Roth IRA withdrawal rules, qualified and non-qualified withdrawals and how to make your funds grow.

When Can You Withdraw From a Roth IRA?

The money you’ve added to your account is known as your contributions. You can withdraw your contributions from a Roth IRA without paying taxes or penalties.

However, if you withdraw earnings, that is, any interest or gains you’ve earned on your contributions, there may be taxes or penalties to pay.

To ensure your withdrawals are tax-free, you must meet the following conditions:

• Age 59 ½ rule: You must be at least 59 ½ years old, and
• Five-year rule: The Roth IRA must have been open for at least five years before you withdraw the money without paying taxes. 

How a Roth IRA Works

A Roth IRA is a retirement savings account that allows you to contribute after-tax dollars. You can enjoy tax-free growth during retirement. Withdrawals are eligible to be tax-free as long as the individual is older than 59 ½ and the account is open for at least five years.

Contributions

You can withdraw contributions at any time without incurring a penalty, regardless of your age. Since you’ve contributed after-tax dollars, there’s no additional tax liability. 

Earnings 

Earnings represent your investment’s growth over time. This could mean the earnings you’ve made from dividends or interest, such as from a savings account or capital gains from selling investments within your Roth IRA.

Remember — to withdraw your earnings tax and penalty-free, you should be at least 59 ½ years old and have had your Roth IRA open for at least five years.

If you withdraw earnings without meeting these conditions, it’s considered a non-qualified withdrawal. Non-qualified withdrawals are subject to a 10% penalty and income tax, unless you qualify for an exception.

Flexibility

Since Roth IRAs are funded with after-tax dollars, you don’t typically pay taxes when you withdraw. That makes it a bit more flexible than other retirement options, as it inherently means it’s tax and penalty-free.

Also, because Roth IRAs have no required minimum distributions, you can let the money grow in your Roth IRA. This allows more options for long-term planning. However, if you withdraw early, it reduces the amount of funds in your Roth IRA. This can impact your future retirement savings.

Roth IRA Withdrawal Rules

There are key differences between a qualified withdrawal and a non-qualified withdrawal. Here’s how to make that distinction.

Qualified Withdrawals

A qualified withdrawal means you’ve met these conditions. If you have, you will not have to pay taxes or penalties. These include:

1. Being at least 59 ½ years old.
2. Having a Roth IRA for at least five years.

Some exceptions allow you to withdraw those earnings early and still not incur a penalty, such as:

First-Time Home Purchase

• You can withdraw up to $10,000 for a first-time home purchase.
• To be considered a first-time homeowner, you or your spouse must not have owned a home in the last two years. 

Permanent Disability

• There is no penalty if you withdraw from earnings due to permanent disability.
• You must meet the IRS criteria for permanent disability. 

Death of Original Owner

• If the beneficiary inherits the Roth IRA after the original owner’s passing, they can take distributions without a penalty. 

Qualified Education Expenses 

• If you are using the earnings toward paying for yourself, a spouse, children or grandchildren’s qualified education expenses at a higher institution, you won’t be required to pay a penalty. 
• Tuition, fees, books, required equipment, room and board and supplies will be covered as qualified education expenses.

Unreimbursed Medical Expenses

• If you have unreimbursed medical expenses that exceed 7.5% of your adjusted gross income for the year, you can avoid the 10% penalty on the amount you withdraw to cover those expenses.
• This applies to anyone with significant medical expenses in a given year.

Health Insurance Premiums While Unemployed

• If you are unemployed, health insurance premiums for yourself, your spouse and dependents can be withdrawn from a Roth IRA without a penalty. 
• To qualify, you must have lost your job and received unemployment compensation for at least 12 consecutive weeks.

Birth or Adoption

• You can withdraw up to $5,000 penalty-free from a Roth IRA within one year of the birth or adoption of a child.
• This applies to both parents for each birth or adoption.

Substantially Equal Periodic Payments

• If you set up substantially equal periodic payments based on your life expectancy or the joint life expectancy of you and your beneficiary, you can avoid the 10% penalty.
• This exception applies to anyone under 59 ½ who sets up an SEPP.

Non-Qualified Withdrawals

A non-qualified withdrawal applies to withdrawing earnings when you are under 59 ½ and the account has been open for less than five years. You may receive a penalty, incur taxes or both. Certain exceptions apply to non-qualified withdrawals to allow you to avoid penalties. 

How To Avoid Penalties with Non-Qualified Withdrawals

You may have some situations where there are no penalties.

In some of these exceptions, however, you might still have to pay taxes on the income if you don’t meet the five-year rule. 

Roth IRA Distribution Rules for Contributions

For contributions to your Roth IRA, you can withdraw those funds at any time without any taxes or penalties since those were made with after-tax dollars. 

Unlike a traditional IRA, you are not obligated to take required minimum distributions, or RMDs, from your Roth IRA during your lifetime. This means you can hold that money in your account to grow tax-free.

If you’re a non-beneficiary of a Roth IRA, you are required to transfer all the funds within 10 years of the original owner’s passing.

Roth IRA Distribution Rules for Earnings

Once you’ve withdrawn money from your Roth IRA, how it’s taxed depends on whether or not it’s qualified or non-qualified.

Non-qualified withdrawals mean you haven’t met either of the conditions of being at least 59 ½ years old and having an account open for at least five years. This leaves you subject to a 10% penalty and you may owe taxes.

Final Take

A Roth IRA is a way to grow your money tax-free. However, withdrawing your earnings prematurely, either before you turn 59 ½ or if your account is less than five years old, you may have to pay a penalty and taxes.

There are exceptions to these penalties, including first-time home buying, qualified educational expenses or disability. The best option is to keep your earnings in the account until after you turn 59 ½, and five years after the account is opened.

Melanie Grafil contributed to the reporting for this article.

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