Roth IRA Withdrawal

A Roth IRA withdrawal must be performed carefully to avoid any penalties from the IRS. There are a number of requirements that must be met for the full benefits of a Roth IRA account to be received. A withdrawal from an IRA account is called a distribution, and the IRS has strict rules on when a distribution can occur without a 10% early withdrawal penalty being assessed by this agency. To be eligible for a distribution that does not involve the early withdrawal penalty the IRA account must be open at least 5 years and the account owner must be at least 59 ½ years old. There are some exemptions to the Roth IRA withdrawal penalty rules though. In certain situations the IRS will not levy the 10% early withdrawal penalty even if the account standing and age requirements are met because of the specific exemptions allowed.

Exemptions from the early Roth IRA withdrawal penalty may include:

  • The death of the account owner when the account is closed and the funds are withdrawn
  • If a levy is placed against the Roth IRA account by the IRS. This exemption allows any unpaid taxes due to be withdrawn and the taxes paid without any penalty for early distribution.
  • Withdrawals made to pay qualified higher education expenses for the account holder or a related family member.
  • An early distribution up to $10,000 can be made for the first home purchase without any penalty being assessed.
  • A serious disability affecting the IRA owner which meets the allowable definition according to the IRS. In this case an early distribution penalty will not be applied.
  • If past medical expenses are not reimbursed then an early distribution for the amount owed on these expenses up to 7 1/2% of the modified adjusted gross income may be made without incurring a penalty.
  • An early distribution is allowed to cover medical premium expenses if the account owner is unemployed for at least 12 weeks and receives unemployment compensation for this time period. The distribution amount can not exceed the amount of the medical premiums owed though.
  • The early withdrawal penalty may be waived by the IRS if the account owner has made equal periodic payments that are substantial over the course of the life expectancy of the account owner.

In most cases an early Roth IRA withdrawal can be very costly. Between the income taxes owed on the early distribution and the 10% penalty the IRS adds in the price of an early withdrawal can be substantial. The exemption list shows that there are a number of exceptions available to owners of this type of IRA account. If a withdrawal is made to meet qualified expenses or other qualified criteria then the early penalty is waived.

The purpose of any IRA account is to put aside money for retirement, and this is why an early Roth IRA withdrawal is discouraged and penalized. The IRS does want to allow individuals who need the IRA funds for a good reason to have the ability to withdraw the funds without being penalized though, and the exemptions allow this.