When Can You Take Distributions From a Roth IRA?

by Herb Kirchhoff

The Roth individual retirement arrangement (IRA) was established as an alternative to the traditional tax-deferred IRA. It offers tax-free income at retirement but no tax deduction on IRA contributions before retirement. IRS rules for Roth plans determine when you can take distributions. Those rules also determine whether your Roth IRA distribution is free of taxes.

Retirement Distributions

You can start taking retirement distributions from your Roth IRA after the date you reach age 59 1/2, provided the Roth account has been open for five years or more. The Internal Revenue Service (IRS) deems you retired at age 59 1/2. Roth retirement distributions are tax free and don't have to be reported on your income tax return. However, even if you are at retirement age, distributions from a Roth account open for less than five years are considered early distributions that may be subject to a tax penalty and income taxes.

Disability Distribution

You also can start taking tax-free distributions from your Roth account at any age if you become disabled. The IRS defines disabled as being unable to do any substantial gainful activity because of your physical or mental condition. Disability must be certified by a physician. Additionally, at any age you can take a tax-free Roth IRA distribution of up to $10,000 for a down payment on your first home. Again, these rules apply to Roth accounts open for five years or more.

Early Distributions

You can take an early distribution from your Roth IRA at any age, for any reason, but you may have to pay a tax penalty and income taxes on that early distribution. Taxes and penalties on your early distribution will depend on how much you withdrew and why you took the early distribution. The IRS charges distributions first to your direct contributions, then to contributions from IRA rollovers and lastly to earnings on your Roth account. If your early distribution is less than what you paid into the account from your own pocket, you owe no penalties or taxes since you paid the taxes on that money before you contributed it to your Roth account.

Taxable Distributions

If you take an early distribution that exceeds your direct contributions, you may have to pay a tax penalty and possibly income taxes on the amount above your direct contributions. If your early distribution includes money from an IRA rollover done less then five years ago, you will owe a 10 percent penalty tax on that amount. Rollovers more than five years old are treated the same as your direct contributions. If your early distribution includes money from your IRA earnings, you will owe income tax and the 10 percent tax penalty on the earnings. However, you will avoid the penalties and taxes if your took an early withdrawal to pay medical expenses exceeding 7.5 percent of your income, pay health insurance premiums after losing your job, pay college tuition and related expenses, or because you are a military reservist called to active duty.

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