Tax Implications of Taking Money From a Roth IRA

by W D Adkins

Unlike employer-provided retirement plans, Roth IRAs are set up by individuals. All you need is earned income and the desire to save for your retirement years. Roth IRAs generally follow the same rules as traditional IRAs. However, the tax benefits are different and so are the tax implications of taking money from a Roth IRA. For many people, these differences make a Roth IRA a great investment vehicle for retirement savings.

Roth Basics

When you make contributions to a Roth IRA, the money you put in is not tax deductible, as is the case for traditional IRAs. All funds, including earnings, are not subject to taxes while in the Roth account. You are supposed to leave your Roth IRA earnings in the account until you reach the age of 59-1/2 and the IRA has existed for at least five calendar years. If these conditions are satisfied, money taken from a Roth IRA is a qualified distribution. For Roth IRAs, this means the money withdrawn is not subject to any income taxes.


The money you contribute to a Roth IRA may be withdrawn at any time without incurring any sort of tax penalty or liability. This is due to the fact that you don’t get a tax deduction in the first place, so you have already paid the taxes due. The IRS assumes any money taken from a Roth IRA represents contributed funds unless you take out more than the total contributions you have made to date to the IRA.

Early Distributions

If you take earnings out of a Roth IRA before you reach age 59-1/2 or before the five-year rule is satisfied, you will have to pay ordinary income taxes on the withdrawn funds plus a 10-percent tax penalty. The IRS does make some exceptions. In most cases, under these exceptions the penalty tax is waived, but you must pay ordinary income taxes on the money taken out early. Thee exceptions include withdrawals for certain medical and higher-education expenses, to pay health insurance while you are unemployed and to pay an IRS levy.

Qualified Early Distributions

Thee are three instances in which you may take money other than contributed funds out of a Roth IRA as a qualified distribution not subject to any penalty or income taxes. In all three cases, the account must be at least five calendar years old. Provided that is the case, you can take money out if you inherited the IRA, if you become totally and permanently disabled, or if the money (up to $10,000) is used for the repair or purchase of a first home. The IRS will waive the penalty tax when you take money out for these reasons before the five-year rule is satisfied, but you will have to pay income taxes on the funds.

About the Author

Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.