Rules for Withdrawal of a Roth IRA

By W D Adkins

  • Overview

    A Roth IRA is one of several types of accounts that provide tax benefits to help individuals save for retirement. Because the purpose of a Roth IRA is to save for retirement, the Internal Revenue Service (IRS) has strict rules for withdrawal of a Roth IRA. Not following these rules can be very expensive; you may forfeit the tax exempt status of earnings and incur a tax penalty as well.
  • Identification

    Contributions to a Roth IRA are not tax deductible (unlike traditional IRAs or 401(k) accounts). However, qualified disbursements are exempt from all federal taxes, including Social Security taxes. You can contribute up to $5,000 ($6,000 after age 50) per year as long as your earned income at least equals the amount contributed. These contributed funds can be withdrawn from a Roth IRA at any time. Withdrawal rules apply only to earnings or to funds rolled over from other types of retirement accounts. Unlike some retirement plans, there are no required withdrawals from a Roth IRA at any time.
  • Function

    Under IRS rules, a qualified withdrawal can be made only after the completion of the fifth year of the Roth IRA. In addition, at least one of the following conditions must apply: you must have reached the age of 59 1/2, you are disabled, the withdrawal is used for the purchase or rebuilding of a first home (up to a lifetime total of $10,000) or the withdrawal is made by your beneficiary after your death.


  • Rollovers

    The rules for withdrawal of a Roth IRA allow you to convert (rollover) funds from other types of IRAs. You have to declare any funds on your income tax as if the money from the other IRA had simply been distributed. When funds are rolled over into a Roth IRA, they must remain there for at least 5 years from the time of the rollover before withdrawal will be considered a qualified distribution. Contributions to the Roth IRA are withdrawn first, rollover funds second and then earnings.
  • Penalties

    Early withdrawal of Roth IRA funds can be expensive. Nonqualified distributions are subject to a tax penalty of 10 percent of the amount withdrawn. If the amount withdrawn is considered earnings, it is also subject to regular income, Social Security and other taxes. The IRS strongly recommends in Publication 17 (link below) that you consult your accountant or tax adviser before making any early withdrawals and before rolling funds over from another IRA. A failed rollover can also be considered a premature distribution.
  • Warning

    IRS rules restrict the types of investments that may be made in a Roth IRA. If you choose to have a self-directed Roth IRA, rather than a managed account, you are responsible for complying with these rules. For example, collectibles such as rare coins are prohibited. If you make a prohibited investment, the IRS will treat it as a premature withdrawal and it will be subject to regular taxes plus the 10 percent penalty.
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