A:

If you close the Roth IRA now and withdraw the balance, you will be taxed on the earnings unless the distribution is qualified. Furthermore, you will pay a 10% early distribution excise tax on the earnings unless you qualify for an exception.

The exceptions are listed on page 58 of IRS Publication 590. You will not owe any taxes on the principal.

If you are using the funds to contribute to another savings plan, find out whether your contribution is deductible. Some states allow a tax deduction for contributions made to such plans as prepaid college funds.

To learn more, read Taking Penalty-Free Withdrawals From Your IRA and Rules Regarding Substantially Equal Periodic Payment (SEPP).

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Can I use my social security or my pension to reduce income on my taxes?

  2. Can I close my existing Roth IRA and invest in a new Roth IRA at a different financial ...

    If If you withdraw your Roth IRA contribution, the amount will be tax and penalty free. If your initial contribution accrued ... Read Answer >>
  3. Can I withdraw money from my Roth IRA?

    Withdrawing money from you Roth IRA is taxed and penalized under certain conditions. Learn about the five-year rule and prerequisites ... Read Answer >>
  4. Can I use my IRA savings to start my own savings?

    Find out whether you can withdraw funds from your IRA to start a savings account, and why this is not the wisest use of your ... Read Answer >>
  5. Are there tax penalties for closing my Roth IRA account?

    You can close your Roth IRA account without negative consequences if your total account balance is less than the accumulated ... Read Answer >>
  6. Can I use my IRA to pay for my college loans?

    Learn about how to use your IRA retirement savings to pay for your college loans, including how to avoid the 10% early withdrawal ... Read Answer >>
Related Articles
  1. Retirement

    How Are Dividends On IRAs Taxed?

    Reinvesting dividends in an IRA is a great way to grow your retirement funds faster, but be sure you understand the potential tax trap.
  2. Retirement

    5 Secrets You Didn't Know About Roth IRAs

    Between its generous tax benefits at retirement and no required minimum distributions, a Roth IRA is well worth considering if you're eligible to have one.
  3. Retirement

    How a Roth IRA Works After Retirement

    What retirees need to know about taxes, distributions and passing on your unspent savings to the next generation.
  4. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  5. Retirement

    Why You Should Have a Roth IRA

    The world of retirement savings plans is filled with options. Here are the reasons why you should consider a Roth IRA when saving for retirement.
  6. Retirement

    Roth vs. Traditional IRA: Which Is Right For You?

    To answer this question, you need to consider several of the factors we outline here.
  7. Retirement

    How to Use Your Roth IRA as an Emergency Fund

    Do you feel like you don’t have enough money to save for emergencies and also save for retirement? An often-overlooked feature of the Roth IRA could solve your problem.
  8. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
  9. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  10. Retirement

    These IRA Contributions Will Cut Your 2015 Taxes

    No matter how you save for retirement, take advantage of the time between now and April 15, 2016, to add to your nest egg while cutting your tax bill.
RELATED TERMS
  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  3. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  4. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
  5. IRS Publication 590: Individual Retirement Arrangements (IRAs)

    A document published by the Internal Revenue Service (IRS) that ...
  6. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center