Roth IRA Distributions

October 16th, 2009

Many times an investor’s number one objection to making an IRA contribution is that the funds are not accessible without a penalty or tax consequence under IRA Rules. Under Roth IRA rules, however, contributions to a Roth IRA individual retirement account are never tied up. Roth IRA account owners may withdraw their contributions at any time, for any reason, without tax or penalty. Is this too good to be true? Actually it is. There are some little Roth IRA rules you still have to follow before you take advantage of the Roth IRA distribution rules.

Distributions of earnings may be taken at any time, but the tax treatment is different depending upon the age and circumstances of the recipient.

Tax and Penalty Treatment of Roth IRA Distributions

There are three different tax treatments for distribution of earnings from Roth IRA, under Roth IRA distribution rules:

Roth IRA distribution rules #1: Tax-Free, Penalty-Free (“Qualified Roth IRA Distributions“)

Distribution taken after “Five-Year Holding Period” of a Roth IRA individual retirement account, under the Roth IRA distribution rules, and either:

After age 59½

First time home purchase (up to $10,000 lifetime maximum)

Disability

Death

Roth IRA distribution rules #2: Tax, No Penalty (“Non-Qualified Distribution”)

Distribution taken from a Roth IRA individual retirement account before the “Five-Year Holding Period” and either:

After age 59½

Life Event Distribution

Roth IRA distribution rules #3: Tax, With Penalty (“Non-Qualified Distribution”)

Distribution taken from a Roth IRA individual retirement account, under the Roth IRA distribution rules which is either:

Before age 59½

Not a Life Event Distribution

Regardless of how long the Roth IRA has been held

IRA Rules