Roth IRA Withdrawal Details

A Roth IRA Withdrawal has many intricacies that you need to be very aware of. As you may know, the owner can make a withdrawal from their retirement account at any time, however, unless the roth IRA withdrawal is done exactly right, the earnings could possibly be taxes and open to early withdrawal penalties.

Basic Roth IRA Withdrawal Qualifications

Roth IRA plans have some basic qualifications, one of which must be met in order for the withdrawn amounts to avoid being penalized or taxed. The most common qualifications are: 

1. The Roth IRA withdrawal must be initiated by the owner who has attained the age at least 59 1/2 years of age; 
2. In the event of death, the withdrawal from the Roth IRA must be the owner's beneficiary or estate;
3. The Roth IRA withdrawal must be made to the accountholder only after they have been deemed to be disabled;
4. The withdrawal of the Roth IRA funds may be used to pay for a down payment on a home for first-time home buyers, and is subject to a $10,000 maximum lifetime benefit;
5. The withdrawal of the retirement account funds can be in a series of substantially equal periodic payments, also known as a 72t distribution made over the Roth IRA owner’s life expectancy;
6. The Roth IRA withdrawal must be used to pay medical expenses that have not been reimbursed elsewhere, and also cannot exceed 7.5% of the owner's adjusted gross income;
7. The withdrawal can be used to pay for predetermined higher education expenses for the Roth IRA owner or their eligible dependents.

Other Roth IRA Withdrawal Notes

Understanding that the withdrawal is subject to the five year rule when a Roth IRA withdrawal is made is of paramount importance. However, a withdrawal of the contributed funds, also known as “basis”, can be made at any time the account holder chooses. Any earnings above the basis that are withdrawn must meet one of the seven qualifying statements above or they may be subject to tax and penalties.

Also, please keep in mind that the tax year ends for example on April 15 of 2011. As a result, any contribution made by April 15 will go towards the previous tax year, in this case 2010, and the clock for the five year rule will have begun ticking in January of the previous year. Provided that one of the other 7 provisions is met, earnings may be withdrawn without penalties or taxes beginning January 1, 2015

Once again, not to beat a dead horse, but a Roth IRA withdrawal not following the previous stipulations may be subject to some very punitive fees and taxes because the money that is contributed is not taxed. As a result, if the funds are withdrawn, you are charged income tax plus an additional 10% early withdrawal fee.