Roth IRA Withdrawal Rules

You can withdraw Roth IRA contributions any time, but you can't withdraw earnings without penalty for five years — unless you have a qualified exception, such as a first-time home purchase.
Investing, Retirement Income, Roth IRA

For the most part, rules for Roth IRA withdrawals are more flexible than those for a 401(k) or even a traditional IRA. But it’s important that you stick by them because not doing so could cancel out some of the Roth’s super-charged tax perks.

Rules for Roth IRA withdrawals

Because you already paid taxes on the money you’ve contributed to a Roth IRA, the IRS isn’t as grumpy about letting you have it back. In fact, you can withdraw your contributions at any time.

The key word there is contributions — the money you put into the account. A different standard applies to your investment earnings. For those, the Roth IRA has a five-year rule: You must hold the account for five years before a withdrawal of your investment growth is considered qualified. Otherwise, you may pay taxes plus a 10% penalty on the earnings portion of your distribution.

The five-year clock starts on Jan. 1 of the year you make your first contribution. In addition, to be considered qualified, a withdrawal that includes earnings must be made:

  • When you are 59½ or older or
  • Because you’ve become disabled, you died and distributions are being taken by your estate or account beneficiary, or — a wee bit more cheerful — you are withdrawing up to $10,000 to buy your first home.

Exceptions to Roth IRA early Withdrawal penalty

Only qualified withdrawals allow you to avoid standard taxes on the earnings you pull out. That means if you begin contributing to a Roth IRA at age 58, a withdrawal of earnings at 59½ wouldn’t be considered qualified; you may be taxed, unless you wait until the account meets the five-year holding rule.

The IRS has a set of exceptions that may allow you to avoid the 10% penalty if you withdraw earnings, even if you haven’t met the five-year rule.

But the IRS has a set of exceptions that may allow you to avoid the 10% penalty — not taxes — if you withdraw earnings, even if you haven’t met the five-year rule.

  • You are 59½ or older.
  • The withdrawal is for a first-time home purchase.
  • The withdrawal doesn’t exceed qualified education expenses.
  • You can use Roth IRA funds for unreimbursed medical expenses in excess of 10% of your adjusted gross income for the year.
  • The withdrawal is for health insurance premiums while you are unemployed.
  • The withdrawal is due to disability.
  • The withdrawal is made to a beneficiary or your estate after your death.
  • You decide to take substantially equal payments, which basically locks you into taking at least one distribution per year for at least five years or until you turn 59½, whichever comes last.

ordering Rules for Roth IRA Withdrawals

The good news is that money comes out of your Roth IRA in a set order, contributions first. So if you’ve been contributing regularly and for some time, you may have plenty of funds in your account that can be tapped tax- and penalty-free.

Here’s the order the IRS has set for how money is distributed from a Roth IRA:

  1. Money you contributed to the account directly.
  2. Money you converted from a traditional IRA or rolled over from another Roth account, such as a Roth 401(k). This comes out on a first-in, first-out basis.
  3. Earnings on your contributions.

No required minimum distributions with Roth IRA

Required minimum distributions are a baseline amount you’re required to pull from a retirement account or plan, like a traditional IRA or a 401(k), each year starting at age 70½. Because those plans defer taxes until distributions are made, the IRS is itching to get its money.

But with a Roth, the IRS isn’t waiting for your taxes to stop being deferred — contributions to the account were made with after-tax dollars — so the account isn’t subject to RMDs until the death of the account owner. That means you can maintain the Roth status, with tax-free investment growth, and keep money in the account as long as you’d like, contribute to the account as long as you have earned income, and pass the account to heirs.

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.

Updated May 12, 2017.