Can I withdraw on my Roth IRA without getting tax-whacked?
QUESTION: Are ROTH IRA Withdrawals Tax Free?
Most of the time ROTH IRA withdrawals will be tax free if…
• You withdraw just the amount of your original contributions, and contributions are always considered to be withdrawn first, with earnings coming out last.
The earnings in some cases might be taxable.
• You have had your ROTH IRA for at least five years, and you are over age 59.5, all withdrawals including earnings will be tax-free.
The five-year clock is measured from January 1st of the calendar year for which you first make a ROTH IRA contribution.
Differing rules will apply to…
• Withdrawals from a Roth IRA which has been converted from a traditional IRA
• Withdrawals from a ROTH 401K
You will pay a tax and penalty…
• If you are have had your ROTH IRA less than five years, and you are withdrawing more than the total of all of your original contributions, than the portion of your withdrawal that is investment gain would be subject to income
taxes.
• If you are under age 59.5, the investment gain portion of the ROTH IRA withdrawal would also be subject to a 10% early withdrawal penalty tax.
—Regardless of your age, if you have funds converted from a traditional IRA inside of your ROTH IRA, and it has been less than five years since the conversion, any conversion amounts withdrawn would be subject to a 10% penalty tax, even though they would not be subject to ordinary income taxes.
Questions for Deborah Ritz can be e-mailed to WeeklyADK@yahoo.com
