The Rules for Transferring Money Out of a Roth IRA

by Don Rafner

Roth IRAs are attractive because, unlike with traditional IRAs, the government will not tax your earnings on them. But what if you want to transfer money out of your IRA? If you're not careful, a withdrawal could leave you with a steep financial penalty.

The Basics

If you want to transfer money out of your Roth IRA without facing any penalties, wait until you've turned 59 1/2. That's the age at which the government won't penalize you for taking money out of your Roth IRA. If you withdraw money before this time, the odds are good -- unless you meet certain exceptions -- that you'll have to pay a heavy fine.

The Fine

You'll be hit with a fine of 10 percent of any earnings that you withdraw from your Roth IRA before you turn 59-and-a-half. Here's an example: You've contributed $2,000 to a Roth IRA that is now worth $4,000. If you withdraw all of your funds from this IRA, you'll be hit with an early withdrawal fee of $200. Under Roth IRA rules, you're allowed to withdraw your contributions at any time without paying the 10 percent penalty. In this case, the 10 percent penalty only covers the $2,000 that your Roth IRA has earned.

Taxes

You'll also have to pay normal income taxes on your Roth IRA earnings if you withdraw them before you hit 59-and-a-half. This could be a steep financial hit, too. If you are in the 28 percent tax bracket, you'll pay $560 if you withdraw $2,000 worth of earnings from a Roth IRA before 59-and-a-half. In total, then, that $2,000 early withdrawal of earnings will cost you $760.

Exceptions

There are some exceptions that will allow you to transfer money out of your Roth IRA without suffering financial penalties even if you take this money out before you turn 59-and-a-half. For example, you won't be hit with the 10 percent penalty if you withdraw money because of a disability or if you use the withdrawal to pay for non-reimbursed medical expenses that are greater than 7-and-a-half percent of your yearly adjusted gross income. No penalties occur, either, if an early withdrawal occurs because the owner of the Roth IRA has died. You can also withdraw money without any penalty if you use the dollars to pay for qualified higher-education expenses for yourself or eligible family members.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.