As I mentioned briefly in the Roth IRA Comprehensive Guide, there are several unique rules for withdrawing money from your Roth IRA. If you are considering using a Roth IRA OR don’t know what a Roth IRA is, I recommend you go to the guide and read through it to get a better understanding of it before getting into the details of withdrawing money from a Roth IRA.

If you are wanting to learn more about the withdrawal rules of a Roth IRA, the odds are that you either are in a bind and needs some quick cash, or two, just understanding all of the rules/regulations of a Roth IRA before investing. If it’s neither of those two, you may be like me and love to learn. Regardless of your situation, you’ve come to the right place. Here’s everything you need to know about the withdrawal rules.

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Ability to Withdraw CONTRIBUTIONS Tax-free, Penalty-free, at Anytime

The first and most important part when it comes to Roth IRA withdrawal rules is that any money that you put into the Roth IRA can be taken out at any time, regardless of the reason. That means that if you have had your Roth IRA for 3 years, have invested $15,000 and now need that money to buy a new car (stupid reason, but that illustrates the point so well) you can withdraw that money at any point. It really is that simple. No penalties. No taxes. No time requirement.

Why so?

If you’re curious why this is the case, it’s because you have already paid taxes on that money. The Roth IRA is just a vehicle to help you save for retirement, knowing that you don’t have to pay taxes while using that money in retirement. It’s your money, you’ve already paid taxes on it, so why shouldn’t you have access to it? That’s my interpretation of the boring exhaustive IRS regulations, at least.

Early Distribution Tax

Roth IRAs are intended for retirement income. For that reason, there is an age limit of 59 1/2 years old. If you withdraw earnings before that age, you MAY be subject to an additional 10% tax.

Flexibility When Withdrawing EARNINGS

While you can touch your contributions at any time without any fees or penalties, it’s a slightly different story for your earnings – or the returns from your investments. This means that if you have invested $1,000 in your Roth IRA and your balance is now $1,100, you can’t touch that $100 unless the following is true to avoid the fees/taxes:

  1. Your account has to be 5 years old* AND
  2. You are over 59 1/2 years old OR
  3. You have to be using the money for a qualified purpose (a.k.a. Qualified Distribution)

Exceptions to 10% Tax

The IRS is very clear in stating which situations qualify you for an exemption to the 10% tax:

You have reached age 59½.
You are totally and permanently disabled.
You are the beneficiary of a deceased IRA owner.
You use the distribution to buy, build, or rebuild a first home.
The distributions are part of a series of substantially equal payments.
You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
You are paying medical insurance premiums during a period of unemployment.
The distributions are not more than your qualified higher education expenses.
The distribution is due to an IRS levy of the qualified plan.
The distribution is a qualified reservist distribution.

*Technically speaking, your Roth IRA doesn’t have to be 5 years old. It’s five years from the first year that you contribute towards. For example, if you open an account in 2008, but contribute to 2007 before April 15, 2008, the 5 year period would begin on January 1, 2007 (and not when you opened the Roth IRA on 2008).