withdrawal process from Roth IRA

You deposit (or convert) to a Roth. The clock starts and a withdrawal must be on deposits that have aged 5 years or you will incur a penalty. If after 5 years, there is no penalty, just the fact that you have depleted a retirement account.

The process turns out to be simple, some brokers let you transfer on line. I manage an account for an 80 year old woman through Schwab. On line you are able to transfer funds from the IRA (traditional or Roth) to your regular 'cash' account. So that end of it is pretty simple.

You lose the benefit of years of compounding. I am caught between the suggestion that you should never touch that money, and the risk that if you feel it's untouchable, you wouldn't make the deposits in the first place. We know nothing of the rest of your situation, though. You are welcome to post more details.

JOE

Are you sure? My impression was that you must have held the account for 5 years, *and* be greater than age 59.5, but that they do not track individual deposit ages.

I think there's a penalty unless your age is >59.5 years and you have held the Roth IRA account for >5.0 years.

I find the wording on some sites to be a bit ambiguous, but ever the fan of Fairmark, I read this;

which I read to mean I am correct, with the extra warning that it's only the deposits that come back out tax/penalty free pre-59-1/2, the earnings are taxed/penalized. Please take a look and let me know if I am misinterpreting their explanation.

JOE

Yes, you can withdraw your deposits at any time without penalty. In fact, it has been suggested in this forum that it may be wise to use a Roth for your emergency fund, although I would rather think of any type of IRA as strictly for funding your retirement. The earnings on any deposits have limitations as others have posted.

Elizabeth Richardson

ok. not sure why I thought I could take my own money out anytime, after all, I've paid taxes and whatnot from it already.

so, to recap, if I open a Roth IRA and send 100, then I can not take my own 100 until

5 years from day of it being applied?

not talking about the interest or earnings from the fund it may be invested in, just my own money

if I fund the Roth IRA every month with 100, total 1200 for one year, each portion must "age 5 years" before I can take my own money out or even a portion of it?

thanks

Wait a minute folks. I believe that you cannot withdraw *earnings* from the account till you're 59.5 etc, but *contributions* to a ROTH are post- tax and can be removed the same day you put them in, so far as I know, without any tax consequence, but you cannot return them to the ROTH except as the new contribution is still below your yearly limit. Joe W.

thank you. that is how I suspected it should work

You are correct (see IRS PUB 590). You have to pay a 10% penalty unless the Roth distribution is "qualified". To be qualified it has to be after the 5 year period AND you have to be 59 1/2 or older OR the distribution is because you are disabled, it is payable to a beneficiary after your death, or meets the requirements for a first home.

In ADDITION to the 10% penalty you also have to pay additional tax on any portion of the distribution attributable to earnings on contributions. In other words, you don't get to have your money grow tax free if you withdraw early -- it then is no better, worse in fact because of the 10% penalty, than any other type of non-IRA account.

what's the definition on "my own money" versus "earnings" ?

see this link ->

My second post in this thread had the link;

clarified this. And Elizabeth's post as well, state that your deposits can be withdrawn any time, it's a rollover (from a regular IRA or 401(k) that must age 5 years."My own money" if that's how a site phrases it, are deposits you made, any increase in value through appreciation, stock splits, dividends, or interest, is "earnings". Sorry for my mis-quote in first post. Actually, Elizabeth's quote, "it has been suggested in this forum that it may be wise to use a Roth for your emergency fund" was something I suggested. That if one did not have funds for both (an emergency fund and the retirement account) that putting the emergency money in the Roth would at least create some tax deffered growth, and if the emergency never occurred, a head start on the retirement savings. The downside to this, is that in such a scenario, one really doesn't have the two accounts. But I like the idea that the funds don't feel quite so easily tapped, for the fact that they are in an account that says 'retirement'.

JOE

apparently this only applies to Roth IRAs funded with money from another IRA or 401k or such and does not apply to money I deposit from my paycheck or checks I send in during the year from after-tax money

there is also no tax on the withdrawal

I thought that also -- that the intent of an IRA was for *retirement* and not to be a substitute bank, thus the 10% penalty for *any* withdrawal before 59 1/2 (or one of the few exceptions).

In addition Topic 558 from the IRS site says in part:

[quote] Topic 558 - Tax on Early Distributions from Retirement Plans

To discourage the use of pension funds for purposes other than normal retirement, the law imposes an additional 10% tax on certain early distributions of these funds. Early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2... [end quote]

I have read here and in different threads that you can always withdraw your contributions at any time and any age without penalty but I fail to find anything in PUB 590 or other IRS instructions to back that up.

(I know you can withdraw your contribution without penalty in the same

*tax year* that it was made but that isn't what is being questioned).

Page 63 of Pub 590 says that you never have to include your contributions in your income, but that does not eliminate the 10% early withdrawal penalty, that I can see.

It goes on to say (also on page 63-65 and fig 2-1 on page 64) that "qualified distributions" are not subject to the 10% penalty but to be "qualified" you must be 59 1/2 or meet one of the exceptions like being disabled or buying a 1st home.

Every IRS publication, topic and FAC that I have read leads me to believe that if you are under 59 1/2 you are always subject to the 10% penalty if an execption does not apply.

So where does it say (in IRS publications) that you can withdraw your previous contribution for any reason other than one of the few exceptions while under the age of 59 1/2 and not have to pay a 10% penalty on the entire amount that you withdrew?

Pub 590, chapter 2 under "Are Distributions Taxable?":

"You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s)."

The latter condition is not restricted to the return of current year contributions. You may always with draw your Roth contributions (and conversions, after 5 years) penalty- and tax-free. Now... whether it's a good idea or not is a completely different matter.

--Bill

Read further - "Distributions that are not taxable ... are not subject to this 10% tax."

Since a distribution of post-tax money is not taxable, it is not subject to the 10% penalty. (Note that despite the wording on this page, distributions of Roth conversions in under 5 years, while not taxable, may still be subject to the 10% penalty.)

Likewise, Pub 590 says that "Unless one of the exceptions listed below applies you must pay the 10% additional tax on the *taxable part* of any distributions that are not qualified distributions."

(If you read the Pub, you'll see that it is much clearer on when sub-5 year Roth conversions are subject to the 10% tax, even if they are not otherwise taxable.)

If you want to know where this comes from, you'll find it in the IRS regs,

26 CFR 1.408A-6, A-5(a), which says that the "10-percent additional tax ... will apply ... to any distribution from a Roth IRA *includible in gross income*." Mark Freeland snipped-for-privacy@sbcglobal.net

That is correct. You don't pay INCOME TAX on the return of your regular contributions but the 10% penalty is not income tax.

Figure 2-1 on page 64 shows 5 years AND 59 1/2.

"Ernie Klein" wrote On Roth IRA withdrawals in amounts less than original contributions:

snip

Note that Figure 2-1 only indicates whether a distribution /may/ be subject to penalty. Note: I see the IRS calls the penalty an "additional tax" of 10% in some places. For the computation of whether the additional tax (= penalty) may be due, see

.Worksheet 2-3, Line 12 and the lines around show that no tax (10% additional or otherwise) is owed if contributions exceed distributions blah blah. Hence sites like say distributions less than contributions are not taxed nor penalized, assuming blah blah. Unless you read very carefully and have a very sharp mind, you won't extract this easily from the IRS code.

You can't conclude this from Worksheet 2-3. The worksheet doesn't address the penalty; it merely computes the amount that is taxable aside from penalty.

Consider someone who has only a traditional IRA (say $10K), converts it to a Roth, and withdraws the $10K the next year. According to the IRC, this withdrawal is not taxed, but is subject to the 10% penalty.

Lines 1, 3, 5, 7, 9 are all $10K (the even lines are 0). Line 10, the key line, is $10K (the amount that was taxed upon conversion). That makes line

11 $0, thus line 15 is $0, and bottom line 16 is $0.

Alternatively, consider the fact that certain nonqualified distributions are exempt from the penalty (e.g. first home purchase). Since there are no lines dealing with this in the worksheet, it cannot possibly be computing the amount subject to the 10% penalty.

Why, thank you :-)

Mark Freeland snipped-for-privacy@sbcglobal.net

I read over that 100 times and still missed that wording, thanks for pointing it out.

Thanks for the reference.