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Roth IRA Withdrawals
There are three potential parts to the balance of your Roth IRA; the contributions
you made, any contributions made as a result of a conversion, and the earned money
made by the investments in the account. The contributions you have made can be withdrawn
at any time. Since you have already paid taxes on those funds, it does not count
as earned income and is not taxed at the end of the year. If you continue to withdrawal
beyond the amount of your contributions, the funds may be taxed a 10% fee if they
are not considered qualified distributions. Once the initial contributions have
been distributed, the IRS considers the next distribution part of any converted
funds you may have contributed. Distribution of converted funds in less than five
years of the conversion is not considered a qualified distribution. Finally, your
earnings on your contributions are the last funds to be distributed once your contributions
and converted funds are exhausted.
Roth IRA Qualified Distributions
In order to withdraw funds (other than contributions) and have them not count towards
your gross income, they must meet several requirements to be a Qualified Distribution.
A distribution is qualified if it is made 5 years after you first contributed to
your Roth IRA and it occurs after you reach age 59 1/2. Additionally, if the distribution
is made because you are disabled or is for a first home, the distribution is considered
qualified. Distributions that are not qualified are subject to a 10% tax.
From IRS Publication 590: Individual Retirement Arrangements
Qualified Distribution Exceptions
In order to withdraw qualified distributions from your Roth IRA without tax penalties,
you must meet one of several requirements.
- You are age 59 ½ or older
- You are disabled
- You are the beneficiary of a deceased IRA owner
- You will use the distribution for a first-time homebuyer program
- You have significant unreimbursed medical expenses
- The distribution is part of a series of substantially equal payments
- You are paying medical insurance premiums after losing your job
- The distribution is not more than your higher education expenses
- The distribution is a result of an IRS levy of the qualified plan
- The distribution is a qualified reservist distribution
Next: Learn how a Roth IRA fits into your
overall portfolio
Page last modified 2/3/2012