Understanding Roth IRA withdrawal rules

You can withdraw—without taxes or penalties—any contributions you’ve made to your Roth IRA anytime. To avoid taxes and penalties on investment earnings, you generally must be at least 59 ½ years old and have held the account for at least five years. But there are some exceptions.

What you’ll learn:

• Roth IRA contributions are after-tax money, and you can withdraw them at any time.

• You may have to pay income taxes and a 10% early withdrawal penalty if you withdraw earnings from your Roth IRA that don’t meet the qualified distribution requirements.

• Some exceptions allow you to avoid the early withdrawal penalty and taxes.

When you withdraw money from your Roth IRA, it’s called a distribution. Distributions fall into two categories: qualified or nonqualified. Qualified distributions meet IRS requirements and aren’t subject to taxes or penalties. Nonqualified distributions may be subject to taxes, penalties or both.

For a distribution to be considered qualified, you generally must meet two requirements:

• The five-year rule: You must have held and funded the account for at least five years.

• Age: You must be at least 59 ½ years old.

If you meet both requirements, you can withdraw both contributions and investment earnings without paying taxes or penalties. 

If you don’t meet the five-year rule, it’s unlikely your distribution will be qualified—no matter how old you are or your circumstances. However, if you do meet the rule, it’s possible distributions can still qualify even if you’re under 59 ½ years old in certain scenarios.

If you’re younger than 59 ½ years old but you meet the five-year rule, your distributions can still be qualified if:

• The distribution is due to your being disabled.

• The distribution is made to a beneficiary or to an estate after your death.

• The distribution is for purchasing a first home, is for $10,000 or less and meets additional IRS requirements.

If you’re under 59 ½ and your distribution isn’t qualified, you’ll owe income taxes on it. You may also be subjected to an additional 10% tax penalty for early distribution unless you qualify for an exception.

Early distribution is when you make a nonqualified withdrawal of earnings from your Roth IRA before you turn 59 ½ years old. Keep in mind, you can withdraw your contributions at any time with no taxes or penalties. Early distributions are taxable and also come with an additional 10% tax penalty.

Early distributions will be taxable income even if you qualify for an exception. But you may be able to avoid the additional 10% tax penalty if one of the following IRS exceptions applies:

• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (AGI).

• The distribution is for the cost of your medical insurance due to a period of unemployment.

• You are totally and permanently disabled.

• You have been certified as having a terminal illness.

• You are the beneficiary of a deceased IRA owner.

• You are receiving distributions in the form of a series of substantially equal periodic payments.

• The distribution is for your qualified higher education expenses.

• You use the distribution to buy, build or rebuild a first home.

• The distribution is due to an IRS levy of the IRA.

• The distribution is a qualified reservist distribution.

• The distribution is a qualified birth or adoption distribution.

• The distribution is a qualified disaster recovery distribution.

• The distribution is a corrective distribution.

• The distribution is to a domestic abuse victim.

• The distribution is for certain emergency personal expenses.

You can find a more in-depth explanation about these situations on the IRS website.

If you’re over 59 ½ years old and you take a nonqualified distribution, you won’t be subjected to the 10% tax penalty. But you’ll most likely still owe income tax on the distribution. If the distribution is qualified, you won’t owe any taxes or penalties.

In addition to making regular cash contributions to your Roth IRA, you can also transfer funds from another retirement account into your Roth IRA. This is known as either a conversion or a rollover contribution.

Conversions follow different rules from regular Roth IRA contributions. Each conversion has its own five-year waiting period. This begins January 1 of the year you made the conversion, not the year you first made a contribution or opened the account. 

If you withdraw converted funds before the five-year period ends, you may owe income taxes and an additional 10% early withdrawal penalty, even if you already paid taxes on the conversion when you transferred the money.

Traditional IRAs require you to take required minimum distributions (RMDs) once you turn 73. If you don’t, you may have to pay penalties on the amount you were supposed to withdraw. But if you have a Roth IRA, you don’t need to worry about RMDs from the account unless you’ve inherited the Roth IRA from someone other than your spouse.

When you inherit a Roth IRA, you may be required to take RMDs following the same rules as traditional IRAs. Your withdrawals of the contributions are tax-free, but you may have to pay income tax on earnings if it hasn’t been at least five years since the original account holder opened the account. See the IRS website for more details.

Saving for retirement is an important part of financial planning, and Roth IRAs offer a flexible option that can give you long-term tax benefits and easy access to the money if you need it early.

You can withdraw your contributions to the account anytime without paying additional taxes or early withdrawal penalties. And once it’s been five years, you might qualify for other tax- and penalty-free withdrawals of your earnings and converted IRA funds. But before you take out money, review the Roth IRA withdrawal rules.