5 Important Rules on Withdrawing From Your ROTH IRA Without Being Taxed or Penalized

Life is often full of unexpected surprises. One day everything is going exactly how you had planned. You have a beautiful wife, a house with a white picket fence and a golden retriever running around in the backyard, all the while with the kids studying law at Harvard and lots of money from your paycheck being contributed to your undoubtedly early retirement.

Suddenly in the blink of an eye, everything can change. We won't go into all of the reasons how or why things can change dramatically and quickly. But they can and often do without warning.

Hopefully, you will never go through any of those things. If you do, then it is important for you to know the rules if you find yourself needing to withdraw money from your ROTH IRA before the magic age of 59 1/2.

The ROTH IRA is a retirement fund which is not meant to be tapped into prior to retirement. As a matter of fact, you are not supposed to touch in until the age of 59 1/2.

To clarify, your original contributions can be withdrawn at any time taxfree; however, any earnings made from those monies invested that you try to withdraw are where penalties from early withdrawal can arise.

If you have had a ROTH IRA for less than five years, withdrawals of any earnings will probably be subject to taxes and penalties. However you can avoid the penalties (although not the taxes) if you meet any of the following five items of criteria.

• You are using the money for qualified education expenses
• You use the money to pay for medical expenses of which you were not reimbursed due to having lost your job or being unemployed
• You are making a first-time home purchase (up to 10,000 lifetime maximum)
• You become disabled or pass away
• The distributions made to the ROTH IRA are made in substantially equal periodic payments.

If you have had a ROTH IRA for more than five years but are under 59.5, the same criteria apply however your earnings will not be subject to both taxes and withdrawal fees.

Once you are over 59 1/2, the only provision for withdrawing earnings is whether you have had the ROTH IRA for less than five years or more than five years. In the case that you have had it less than five years, you will be taxed but will not get any withdraweal penalties. Any length over five years will mean no taxes and no penalties.