Roth IRA Withdrawals
Qualified Roth IRA distributions are not be included in your gross income for tax purposes. This means that qualified distributions are tax-free – you do not pay taxes on the earnings the Roth IRA made, and you do not pay taxes on the principal amount you’re withdrawing. That’s right, play your cards right and your earnings are completely tax-free.
Qualified distributions from a Roth IRA must be:
made on or after you are 59 ½ years old; OR
made to your beneficiary after your death; OR
made to you after you become disabled; OR
used to pay for first-time home buyer expenses
If you meet one of these qualifying situations – you also must have not made a qualifying distribution within five tax years. If you withdraw money from a Roth IRA that does not meet both the qualified distribution rules and the five-year-tax rule – the money you withdraw will be subject to tax and penalties.
Early Roth IRA Withdrawals
If you do not meet the qualified distribution requirements but still want to withdraw money from a Roth IRA, you will be subject to penalties on earnings. If you withdraw money before you are 59 ½ years old for example, your withdrawal is subject to an early withdrawal penalty of 10% of the amount of distribution. On top of that, you’ll also pay taxes on the money as income since it does not meet qualified distribution requirements.
Exceptions to the early withdrawal penalty include distributions taken:
due to the IRA owner’s disability
due to the IRA owner’s death
to pay for certain un-reimbursed medical expenses exceeding 7 1/2% of adjusted gross income
to pay for medical insurance premiums if IRA owner has been unemployed more than 12 weeks
used to pay for first time home purchase up to $10,000
used to pay for qualified higher education expenses for the IRA owner or dependents
used to pay the IRS for back taxes
Related posts:
- Learn Roth IRA Basics
- Understanding the Roth IRA
- Discover the 401k IRA Rollover
- Is a stretch IRA right for you?
- Have You Maxed Out Your IRA Contributions Yet?
- What are the Best IRA Rates?
- Know the Guidelines Concerning the IRA Interest
- Understanding How to Settle IRS Debt
- Begin Payments At Retirement With A Deferred Fixed Annuity
- Getting a Tax Refund Advance
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