I am helping my newly self-employed nephew set up retirement plans.
Am I correct that: a) You can withdraw contributions, but not earnings, from a Roth IRA free of tax and penalty as long as the account has been open for 5 years; b) You can only withdraw funds from a Roth 401(k) penalty-free if you are age 59 1/2 or perhaps meet some other requirements.
It's a bit more complicated that the statements you made, although you mentioned some of the criteria. In particular, earnings _are_ free from tax and penalty if the distribution meets the tests for a qualified distribution, such as withdrawal by someone 59½ or older after the Roth has been open for five tax years.
There's a nice flowchart on page 34 of Publication 590-B, here:
The prose explaining the rules starts on page 31.
You can withdraw the amount of your cumulative contributions (but not conversions) from a Roth IRA without tax or penalty at any time, no need to wait for 5 years.
Maria U. Ku, CPA Oakland, CA
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