Accessing Roth IRA Funds Penalty Free

Accessing Roth IRA Funds Penalty Free
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I have been searching endlessly for an answer here and have discussed with accountants as well who cannot tell me definitively what will happen! I tried calling the IRS, which, as I expected, did not help. Here is my situation:

I had originally opened up a Roth IRA account directly out of college and have been regularly adding money under the assumption that I could always remove my contributions after the 5 year rule (I also have a 401K through my employer, which is for retirement… but the Roth IRA was meant to be for additional, tax-free retirement funds with the understanding that I would probably pull out my contributions from time to time for various investment opportunities). Here are my details (I have made up rounded numbers for simplicity):

I opened up a Roth IRA Vanguard account in 2011. I had made contributions of $10K to Vanguard from 2011 to 2014. I then rolled this account over to a Betterment Roth IRA account in 2015 and have made $15K in contributions to Betterment Roth IRA from 2015 through today. I know that I cannot withdraw my Roth IRA contributions without penalty unless the account has been open for 5 years. What I’m not clear on is:

 * Can I withdraw the $10K in contributions that I made to my Vanguard account, or will this incur a penalty because the rollover event from Vanguard to Betterment (after only 4 years of being open) consequently "restarts my 5 year clock" or if the 5 year clock on the entire account starts when I created the account in Vanguard that I rolled over (with the 5 years clock continuing even after the rollover). 
 * If the 5 year clock starts when I created the Vanguard account -- meaning the account would be a total of 8 years old in adding Vanguard account time + Betterment account time -- then I should also have penalty free access to the $15K that I've put into the Betterment account over the last 4 years in addition to the $10K in Vanguard.

Anyone have suggestions on how I can definitively figure this out? The financial ramifications of whether or not these withdrawals are penalty free are very large.


Hi @jvonscha! Great question. You can pull out Roth IRA contributions at any time without tax or penalty. The five-year rule you reference applies to investment earnings, not contributions. In order to make a qualified distribution of investment earnings, you must have held a Roth IRA account for a least five years (along with other requirements — you must be at least 59 1/2, disabled, or using the money (up to $10,000) for a first-home purchase).

Here’s more on the rules for early Roth IRA distributions.


Sorry you got such a runaround before you got here, @jvonscha! That five-year thing even trips up some professionals. But you can always take out your contributions from a Roth. As Arielle noted, you only have to worry about “qualified distribution” rules when you’re talking about earnings.

Here’s the relevant IRS publication, if you need it:


Wow! I have been trying to figure this out for over a year and finally thought of the idea of posting on Nerd Wallet. The five year rule had always come up when discussing this with many tax professionals (and I was always very clear on “contributions” vs. “earnings”). As one quick point of clarification, my Betterment account tells me what my lifetime Roth IRA earnings are. It is INACCURATE to see that I can subtract those earnings from the total amount in my Roth IRA and be able to withdraw those funds penalty free because my Betterment account does not know which funds were earnings and which were contributions from my Vanguard account… they only know what has happened after the rollover. Is this accurate?

My best path forward would be to double-check all of my Vanguard documents and confirm what exactly I contributed? I’m not clear on how the IRS knows this information. I don’t believe that I ever document any of my Roth IRA contributions/earnings on my taxes? Or maybe the financial institutions do this for me?

I keep getting nervous when going to withdraw from Betterment because they raise so many red flags regarding the penalty and do not mention anything about contributions vs. earnings on their site. I have also emailed support, and they refuse to provide any tax guidance. It seems like, if this is such a cut and dry answer, that Betterment and other financial institutions would be fine with making this information public. Well, I guess they do have a financial incentive not to (they don’t want me to withdraw my funds!) :slight_smile:

@lweston: I have reviewed those IRS docs previously… but I guess I still don’t see any clear language in there that states you can always withdraw initial contributions. Am I, perhaps, missing something?

Thanks so much to you both for the guidance!


I’m not surprised you had trouble understanding the IRS website :slight_smile: It’s a bear. This is the part that confirms that distributions of contributions aren’t taxable or penalized:

Are Distributions Taxable?

You don’t include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also don’t include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions , later.

And that reference to ordering rules answers your question: With a Roth IRA, your regular contributions come out first, which means as long as you don’t withdrawal more than you contributed, you will not be taxed. You don’t report Roth IRA contributions to the IRS, but you are responsible for keeping track of your contributions — this is especially important, obviously, if you plan to take a distribution of them later. So yes, I would dig into your Vanguard documents and confirm exactly how much you’ve contributed.

Because you transferred the balance into Betterment, they’re likely not aware of what portion is contributions vs. earnings. I think they’re just trying to cover their bases — honestly, I’d prefer more warnings vs. less, as pulling out too much can be a costly mistake.

I hope that helps!


Definitely helps! Is there an easy way to know if I was penalized for an early withdrawal based on reviewing my tax return?

One other question on a similar topic – I have also rolled over a Roth 401K from a previous employer into my Betterment Roth IRA. Can I withdraw contributions from a Roth 401K as well penalty free? Or is this a different animal, and I cannot touch these?


I think I answered my question with this chart. It seems that you can still withdraw contributions even from a Roth 401K.