Roth IRA Withdrawal Rules

Roth IRAs have some attractive tax benefits that can help minimize your tax liability and reduce your taxable income in retirement. The money in your account grows tax-free, and you won’t be taxed on distributions you take in retirement.

Though you're able to withdraw any funds you’ve contributed to a Roth IRA at any time, you may need to pay taxes and fees if you withdraw earnings before you’re eligible. But there are some exceptions to this rule.

We’ll break down the Roth IRA distribution rules and help you understand when you can withdraw from a Roth IRA.

When can you withdraw from a Roth IRA?

Roth IRAs are tax-advantaged investment accounts that allow you to buy and sell all sorts of securities—like stocks, bonds, mutual funds and exchange-traded funds (ETFs). If things go well, your balance will grow as earnings accumulate in your account.

With accounts like traditional IRAs or 401(k)s, you may owe taxes and penalties if you withdraw money before a certain age. However, since you’ve already paid tax on the money you put into a Roth IRA (called contributions), you can withdraw it at any time without paying taxes or fees—but tapping investment gains could have repercussions. If you don’t meet certain requirements, you may have to pay income tax and/or a 10 percent early withdrawal penalty on any earnings. These requirements are primarily based on:

• Your age: Folks who are 59½ or older have the most leeway when it comes to avoiding taxes and fees. Those younger than 59½ may be able to still withdraw earnings in certain situations.

• How long you’ve had your Roth IRA: If your Roth IRA has been open for less than five years, you may have to pay income taxes and a penalty on investment gains. This is commonly known as the five-year rule.

Withdrawing regular contributions

Regular contributions include any money that you’ve contributed directly to the Roth IRA or any funds you’ve rolled over from other Roth IRAs. This does not include rollovers from traditional IRAs or 401(k)s—which we’ll get to in a minute.

You can withdraw your regular contributions at any time from your Roth IRA without paying income tax or the 10 percent early withdrawal penalty.

Withdrawing converted contributions

If you rolled over funds from a traditional IRA or 401(k) into your Roth IRA, you are still able to withdraw your contributions at any time without paying income tax on the withdrawal. However, you may need to pay the 10 percent early withdrawal penalty if you take the converted funds from the Roth IRA within five years of the conversion. This rule applies to each conversion you make and the five year clock will begin on January 1st of each year that you make a conversion.

Withdrawing earnings

Whether or not you’re able to withdraw earnings depends on whether the withdrawal is a qualified or non-qualified distribution.

A qualified distribution is a distribution that meets all the requirements for a tax-free, penalty-free withdrawal. A withdrawal is considered to be qualified if:

• The IRA account has been open for at least five years, AND

• One of the following is true:

• The account owner is at least 59½

• The owner of the IRA is dead (relevant if you inherited an IRA)

• The funds are being used to support the account owner’s disability

• The funds (up to a $10,000 lifetime max) are used to buy a first homefirst home

If your withdrawal of earnings is considered a qualified distribution, you will not have to pay income tax or the 10 percent early withdrawal penalty. However, if your withdrawal is a non-qualified distribution (meaning it doesn’t meet the criteria above), you may have to pay income tax and an early withdrawal penalty on the money you take out.

However, there are a few situations where you may not have to pay added fees and taxes—even if you withdraw early.

Withdrawing Roth IRA funds early without penalty

Though you generally cannot withdraw earnings early without paying penalties or fees, there are some exceptions to this rule. In certain situations, you can make penalty-free withdrawals, though you’ll still be on the hook for income taxes on those earnings. You do not have to pay the 10 percent early withdrawal fee if:

• You’re withdrawing funds to pay qualified higher education costs.

• You’ve been impacted by a federally declared disaster. (Qualifying individuals can withdraw up to $22,000.)

• You’re withdrawing up to $5,000 in the year after welcoming a child.

• You’re unemployed and the money is used to pay health insurance premiums.

• You’re covering unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income.

• You’re accessing an inherited IRA.

• You’ve passed away and the money is going to your estate or being inherited.

Do Roth IRAs have required minimum distributions (RMDs)?

If you have a tax-deferred retirement account like a 401(k) or traditional IRA, you must begin taking RMDs at age 73. (The age will jump to 75 beginning in 2033.) RMDs generally aren’t required for Roth IRAs—a major perk of having a Roth IRA. The only exception is if the owner passes away and the account is inherited by someone else. In that case, there are requirements about when the inherited IRA must be distributed.

Do Roth IRA withdrawals count as income?

Any contributions you’ve made to a Roth IRA will not count as income, since you’ve already paid taxes on the money. Investment gains could be taxed as income if you make a nonqualified distribution, but if you follow the qualified distribution rules, withdrawals from your Roth IRA in retirement generally will not count toward your taxable income.

You will, however, still need to report your Roth IRA withdrawals on your tax return, even though they don’t count toward your taxable income.

How much can you withdraw from a Roth IRA?

There’s no limit to how much you can take from a Roth IRA. If you’re withdrawing funds early, you’ll need to weigh your reason for withdrawing against potential added fees or taxes you’ll pay. If you’re withdrawing funds in retirement, how much you withdraw from your Roth IRA will be part of your larger retirement income plan.

A Roth IRA can be a powerful tool in retirement. It provides flexibility to help you manage your taxable income. But the real power of a good retirement plan is a creative mix of financial tools to get you to exactly where you’d like to be.

Your financial advisor can help you design a retirement plan that maximizes the benefits of a strategic combination of financial tools. And in retirement, your advisor can give you tailored guidance on how to source your retirement income to make your money last and give you the retirement you always dreamed of.