Rules for Roth IRA Withdrawals

The first aspect to withdrawing money from a Roth IRA is to make absolutely sure that the withdrawal is a “qualified distribution.” A qualified distribution is simply defined as meeting the following criteria:

1. Your Roth IRA account must be open at least five tax years before any earnings are able to withdrawn from the account.
2. Any earnings from your IRA can NOT be withdrawn before you reach age 59.5.
3. Any earnings from your IRA can be withdrawn after you turn 59.5.
4. Principals are able to be withdrawn at any time without the risk of penalty.

It should be noted that not all Roth IRAs are the same. While most IRAs stipulate the age as being 59.5 to be able to withdraw any earnings accrued in the account, some IRAs differ based on the length of the plan, the policy owners’ financial status, etc. Before you begin to think about withdrawing money, consult with an IRA agent regarding the feasibility of drawing on your earnings. It is also important to remember that even though you can withdraw your principle at any time, the IRA will not be maximizing its earning potential once the money is taken out of the account.

Another noteworthy item regarding Roth IRAs is the fact that any attempt to make a withdrawal before the IRA matures will result in not only a penalty from the company distributing the IRA, you will also incur a penalty from the federal government in the form of taxes. The taxes will be based on how much you withdrawal minus the original principal investment. For example, you put $20,000 in a Roth IRA that earns 10% per year. By the end of the first year, you’ll have $22,000 in that Roth IRA. Now the original $20,000 can be withdrawn at any time without penalty, but the $2,000 earned will be penalized not only by the originator of the IRA but also the federal government who will treat it as taxable income.

There is also a distribution chain whereby withdrawal requests will come from certain areas of the IRA before another section of the IRA. When you make your first couple of requests, you will be drawing on the original principle. It doesn’t matter if you have met all of the qualified distribution rules or not, this is the first place from where the money will come. After those funds are exhausted, you will begin to draw on any type of rollover contributions. The final part of the fund that gets withdrawn is the earnings that you made on your IRA.

While it seems that Roth IRAs have extensive rules for withdrawals, it protects you from using the money recklessly. Roth IRAs force you into making good decisions with your money so you can properly retire in the future. By adhering to a couple of simple rules, it should not be that difficult to withdraw money from an IRA.