Withdrawing From Your Roth IRA is Easy
Withdrawing from your Roth IRA is much easier than trying to pull funds from your traditional IRA, you just need to observe a few rules to keep yourself safe. You will need to meet the “distribution of earnings” rules, or the IRS will tax you. Here I’ll show you how you can withdraw early from your individual retirement account and avoid the penalties that can make investing in retirement not worth it.
Are you qualified to Pull Out Your Money Tax-Free?
Ask yourself these questions:
- Are you 60?
- Did your Roth IRA pass to your inheritors, or are you disabled?
- Are you buying a home for the first time?
- If so, these are ways you can get your money out tax free and penalty free.
Tax Free and Penalty Free
Getting your money out of your Roth IRA can be tax and penalty free, but you have to meet the one specification… the “Five Year Rule”. If you remove your money before the first five years of your account (from the date you opened it), you will have to pay taxes on it but not a penalty from the institution. If you pull it out after the five year rule, you won’t have to pay taxes of penalties on your money.
Other Exceptions
- Have you lost your job and paying insurance premiums for you or your family? You can pull money out without the penalty, but you will pay taxes.
- If you paid for medical costs that are in excess of 8% of your income, you can withdraw from your IRA to pay for them without a penalty, but you will pay taxes.
- Are you a victim of a natural disaster, a reservist or using it for recovery assistance? You can pull money out without a penalty, but you will pay taxes.
- If you have multiple IRAs and one of them has been open for more than five years, all of your Roth IRAs will count as being open at the same time.
Understanding how the IRS calculates your Roth IRA withdrawal eligibility is important before you pull your money out. If you’re 57 now, you should wait a little longer to make sure you can withdraw your retirement savings tax free. If you’re spending money on hospital bills, you should wait until you’ve spent more than 7.5% of your income so you can pull it out without paying penalties and taxes. Understanding the rules will help you make the most of your investments.