A:

The penalty for early withdrawal of Roth IRA earnings is 10% of the distribution amount. There is no penalty for withdrawing Roth IRA contributions, only earnings. A withdrawal is considered early if made before the contributor reaches age 59.5. Penalties are not to be confused with ordinary income tax applied to non-qualified distributions. Penalties are charged in addition to this tax.

Penalty-Free Withdrawals

At any time, you may withdraw contributions from your Roth IRA both tax- and penalty-free. If you use the withdrawal to purchase your first home, the money is penalty-free. This applies to a maximum of $10,000, and the money must be used within 120 days. Also penalty-free are withdrawals made to pay for qualified educational expenses. The withdrawal amount must be less than or equal to your annual expenditures for room, board, tuition, books and other higher education-related expenses.

Your withdrawal amount is also penalty-free if you use it to pay for medical expenses during unemployment or to provide income for your family if you become disabled or die. Also, withdrawal penalties do not apply if you arrange to have the money periodically distributed to you in equal amounts. If you withdraw from your Roth IRA for any of these reasons before it has been open for at least five years, taxes still apply. If the Roth IRA has been open for at least five years, both withdrawal penalties and taxes are waived. The government begins calculating the age of your Roth IRA on the first day of the fiscal year in which you made your first contribution.

RELATED FAQS
  1. What are the differences between a Roth IRA distribution and a distribution from ...

  2. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    Find out how to calculate the tax penalty on early IRA distributions, including why distributions from Roth accounts can ... Read Answer >>
  3. 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 >>
  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. 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 >>
  6. When can I withdraw my IRA money?

    Managing an individual retirement account can be tricky. Find out when you can withdraw IRA money without incurring a 10 ... Read Answer >>
Related Articles
  1. Retirement

    How Much Are Taxes On An IRA Withdrawal?

    Taxes on an IRA withdrawal depend on the type of IRA, your age, and the purpose of the withdrawal.
  2. 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.
  3. Retirement

    Your 401(k): Not the Best Emergency Fund

    If you have an emergency and need to access your retirement funds, you may have to pay a penalty if you dip into your 401(k). But there is a better option.
  4. 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.
  5. Retirement

    The Best Bet for Taxes: Traditional or Roth IRAs?

    Choosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
  6. 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.
  7. Retirement

    5 Secrets You Didn’t Know About Roth IRAs

    Being financially savvy requires knowing a few secrets about Roth IRAs, which, for some, are very attractive retirement instruments.
  8. Retirement

    Taking a Roth IRA Early Withdrawal for College Tuition

    Weigh this Roth IRA strategy against using a 529 plan to save for college – it may be smarter.
  9. Retirement

    In Your 20s? Reasons To Get A Roth IRA Now

    There are strong reasons to put retirement savings into a Roth IRA now, while time is on your side, your salary hasn't peaked, and the rules favor you.
  10. Retirement

    Converting A Traditional IRA To A Roth

    When is it a good idea to convert traditional IRA funds into Roth IRA funds? And when does it not make sense?
RELATED TERMS
  1. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  2. Withdrawal Penalty

    Refers to any penalty incurred by an individual for early withdrawal ...
  3. Roth IRA

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

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

    Distributions made from a Roth IRA that are tax and penalty free. ...
  6. Rule 72(t)

    An Internal Revenue Service (IRS) rule that allows for penalty-free ...
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center