Age Requirement to Draw From Roth IRA

Make sure you are old enough before withdrawing money from your Roth IRA.

Roth IRAs are retirement accounts that allow you to save money on a tax-deferred basis and withdraw money on a tax-free basis during retirement. Money in your Roth IRA can be invested in many different financial products. Before you invest in a Roth IRA, you should understand how making withdrawals works.

Types

There are two types of withdrawals for a Roth IRA. A qualified withdrawal is a withdrawal made after age 59 1/2 on interest or profits. A non-qualified withdrawal is a withdrawal made prior to age 59 1/2 on interest or profits.

Benefits

One benefit of a Roth IRA is that, unlike a traditional IRA, the Roth IRA allows you to withdraw money from the plan without suffering a penalty if you are withdrawing your contribution amount only. This flexibility gives you more control over your money than traditional IRA plans. There is also no required minimum distribution like there is with a traditional IRA plan.

Limitations

The Roth does not allow you to withdraw your interest earnings without a penalty and income tax until age 59 1/2. This limitation could give you less access to a substantial amount of money if you accumulate enough inside the plan.

Misconceptions

A common misconception is that you cannot withdraw any money from your Roth IRA until age 59 1/2. This is untrue. Withdrawals from your Roth can be made if you are withdrawing your principal only. Withdrawing interest earnings cannot be done without a penalty prior to age 59 1/2. The exception to this is meeting IRS special exclusions, such as paying for substantial reimbursed medical expenses.

Considerations

Before investing in a Roth IRA, you need to consider whether or not you would like to pay tax on your contributions and receive the distributions tax free. Because future tax rates are unknown, you may benefit from a Roth IRA if tax rates climb higher in retirement than what they are during your working years.

References

• "Ernst & Young's Personal Financial Planning Guide, 5th edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
• "Practicing Financial Planning for Professionals, practitioner's 10th edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004