Retirement Roth IRA Withdrawal Rules and Penalties Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxBlogTeam Published Nov 8, 2022 9 min read Reviewed by Katharina Reekmans, Enrolled Agent Having a Roth IRA account in place for retirement is a responsible plan for the future. After all, you wouldn’t want to worry about your financial security when you’ve finally reached an age to enjoy the fruits of your labor. While contributing to this type of retirement account, you might be wondering what Roth IRA withdrawal rules are in place, both at the time of retirement and sooner if you were to need extra money immediately. Luckily, tax experts are available to help answer any questions along the way, especially with a topic so complex. Some key takeaways for a Roth IRA withdrawal include: Roth IRA distributions on contributions can be taken at any time, both tax- and penalty-free Roth IRA distributions on earnings can be taken both tax- and penalty-free when: You’ve reached the age of 59.5, and Your Roth IRA account has been open for five years The taxes and penalties might be avoided during certain situations, including purchasing your first home, birth or adoption, or covering college education expenses Keep reading to learn more about the Roth IRA retirement account, including detailed information on withdrawals and certain limits on contributions. Roth IRA Contributions and Earnings Withdrawing From Roth IRA Roth IRA Five-Year Rule Roth IRA Income Limits 401(k) vs. Roth IRA Pros and Cons of Taking A Roth IRA Withdrawal Roth IRA Contributions and Earnings It’s important to make this distinction when talking about Roth IRA withdrawal rules: You can withdraw contributions that have been made to your Roth IRA at any time, both tax- and penalty-free. However, depending on when you withdraw your Roth IRA earnings, you might have to pay taxes and penalties. Withdrawing From Roth IRA Before withdrawing from a Roth account, it’s necessary to understand the rules and limitations associated with distributions. Contributions to a Roth IRA are not tax-deductible, though earnings can grow tax-free. Qualified distributions are both tax- and penalty-free, while non-qualified distributions will incur penalties depending on different factors. Keep the following Roth IRA withdrawal rules in mind to avoid a 10% early-withdrawal penalty: Withdrawals must be taken after you’ve turned 59.5 years old Withdrawals must be taken after your five-year waiting period There are certain exceptions to the early-withdrawal penalty — these include distributions to fund certain expenses, like purchasing your first home, birth or adoption, and college tuition. Under the Age of 59.5 If you’re under the age of 59.5, you might need to pay taxes and penalties on your earnings that you’d like to withdraw from your Roth account. Remember that you can withdraw your contributions at any time without taxes or penalty; these only apply to the earnings on your account. If you’ve had your Roth IRA for less than five years: You will be subject to both your standard income tax rate and a 10% penalty on your earnings distribution. You might be able to steer clear of the 10% penalty if you use the funds for one of the following situations: Permanent disability First home purchase Qualified education expenses The birth or adoption of a child Substantially equal periodic payments Unreimbursed medical expenses or health insurance if you lose your job If you’ve had your Roth IRA for more than five years: You will not be subject to taxes, but you will incur a 10% early-withdrawal penalty. You might be able to avoid the 10% penalty if you meet one of the following circumstances: Permanent disability First home purchase Qualified education expenses The birth or adoption of a child Substantially equal periodic payments Unreimbursed medical expenses or health insurance if you lose your job Over the Age of 59.5 If you’ve reached the age of 59.5, you’ve met half of the requirements to withdraw your Roth IRA earnings both tax- and penalty-free. The second half of the requirement is the Roth IRA Five-Year Rule. If you’ve had your Roth IRA for less than five years: Your earnings will be subject to taxes at your normal tax rate, but you will not be subject to the 10% penalty. If you’ve had your Roth IRA for more than five years: You can withdraw your Roth IRA earnings with no taxes and no penalties. Based on the above scenarios, the best time to withdraw from your Roth IRA account is both when you’ve had your account for five years or more and have reached the age of 59.5. This will help keep your money yours, making the most of your contributions and earnings. The distributions that you take once you’ve reached both milestones (or a qualifying event) are known as qualified distributions. Otherwise, the distributions are considered non-qualifying distributions. Roth IRA Five-Year Rule With a Roth IRA account, there are two qualifications that must be met if you wish to withdraw your earnings without owing any taxes and penalties: You must be 59.5 years of age or older, and you must satisfy the five-year rule. So what exactly is the five-year rule? This rule states that there must be five years between the time you make your first contribution and the time that you withdraw your earnings. This rule applies regardless of age, even if you were to hit the age of 59.5 in the meantime. If you choose to withdraw your Roth IRA earnings before you’ve satisfied this five-year rule, expect to pay taxes on the withdrawal as well as a 10% Roth IRA early-withdrawal penalty. Roth IRA Contribution Limits The annual amount that you are allowed to contribute to your Roth IRA is limited by the income that you earn. The annual Roth IRA contribution limit is $6,000 for 2022; this changes to $7,000 if age 50 or older. In other words, your contributions to your Roth IRA account cannot exceed this limit. Roth IRA Income Limits Similarly to the contribution limits, certain limits on income exist with regard to a Roth IRA account. If you’re a single filer: Your Modified Adjusted Gross Income (MAGI) must be $144,000 or less for the tax year 2022 or $153,000 or less in 2023. If you’re a joint filer: Your MAGI must be $214,000 or less for the tax year 2022 or $228,000 or less in 2023. So what do these numbers mean? If your income exceeds the upper limit, you cannot contribute to a Roth IRA account. As the amount of money you make increases, your maximum contribution amount decreases. Below is additional information on how the limits for 2022 and 2023 are calculated: Single or head of household filing status: 2022 MAGI: $129,000 or less Maximum annual contribution: $6,000 (or $7,000 if age 50 or older) 2023 MAGI: $138,000 or less Maximum annual contribution: $6,500 (or $7,500 if age 50 or older) 2022 MAGI: $129,001 to $144,000 2023 MAGI: $138,001 to $153,000 Maximum annual contribution: Reduced2022 MAGI: $144,001 or more 2023 MAGI: $153,001 or more No contribution allowed Married filing jointly or qualifying widower filing status: 2022 MAGI: $204,000 or less Maximum annual contribution: $6,000 ($7,000 if age 50 or older) 2023 MAGI: $218,000 or less Maximum annual contribution $6,500 ($7,500 if age 50 or older) 2022 MAGI: $204,001 to $214,000 2023 MAGI: $218,001 to $228,000 Maximum annual contribution: Reduced 2022 MAGI: $214,001 or more 2023 MAGI: $228,001 or more No contribution allowed As you can see, Roth IRA accounts typically favor those in a lower income bracket, as they can contribute the most, and as you climb the income bracket level, the amount that you can contribute evens out to zero. 401(k) vs. Roth IRA When discussing retirement plans, you might hear about both Roth IRAs and traditional 401(k)s. While these are both great options to help you save for retirement, there are plenty of differences between these two plans that make them unique for different reasons. A traditional 401(k) plan is tax-deferred, meaning that the money that is contributed is not taxed upon entering, but is taxed when distributed. In addition: Employers can offer to match a percentage of your contribution and add it to your 401(k) account. 401(k)s require minimum distributions starting at age 72. Employers must offer the 401(k) program in order for an individual to contribute. Roth IRA plans are a little different, specifically in the way that taxes work. Roth IRA contributions are taxed as they enter the plan, making them untaxed as they are withdrawn. In addition: Roth IRAs can be opened even if an employer does not offer them. There are no required minimum distributions to a Roth IRA. Roth IRAs favor those making a lower income, as they can contribute more per year. Although there are several differences, there are a few ways they are the same. For starters, limitations exist on contributions, though the limit for 401(k) is much higher. In addition, both plans impose a penalty for a non-qualified early withdrawal. Pros And Cons of Taking A Roth IRA Withdrawal While it might be tempting to take a Roth IRA withdrawal, ideally you should wait to withdraw until retirement, when you’ve likely satisfied both the five-year rule and the minimum age of 59.5. After all, the longer you wait, the more you can maximize your overall contributions and earnings, providing you more money for the future without paying any potential penalties. It’s important to note before you withdraw from a Roth IRA that money cannot be repaid to the account; once it’s gone, that money and any earnings that would have come with it are also gone. If there is a situation where you need to withdraw from your Roth IRA, it’s best to consider the pros and cons before making this decision. By withdrawing your Roth IRA, you can avoid paying interest on a loan, which saves you money in the long run. In addition, you can always take out your contributions both tax- and penalty-free and, in some cases, withdraw your earnings penalty-free as well. This may provide you immediate cash relief when you need it the most. Before withdrawing, however, it’s important to know there are a few drawbacks as well. First, the money cannot be repaid to the account, meaning that you are missing out on future tax-free growth. In addition, if you were to withdraw your earnings, you will incur taxes and penalties if you have not both had the account for five years and are under 59.5 years old. Lastly, and maybe most importantly, any money you withdraw now will not be available to you later in life when you do retire, which might make this situation financially difficult for you. Understanding Roth IRA withdrawal rules doesn’t have to be a difficult process; with TurboTax Live, you can speak to a tax expert throughout the year, who can guide you through the process of contributing to and withdrawing from a Roth IRA account, making this process easy for you. Previous Post What is FICA Tax? Written by TurboTaxBlogTeam More from TurboTaxBlogTeam Leave a Reply Cancel reply Browse Related Articles Work Roth IRA: Who Can Contribute? 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