Information on Cashing in a Roth IRA at Age 61
Congress created individual retirement accounts to help people save money for retirement. Roth IRAs offer after-tax retirement savings, meaning qualified withdrawals come out tax-free. All IRAs require that the account holder be at least 59 1/2 years old before taking qualified withdrawals from the account. However, Roth IRAs have another requirement that must also be met.
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Identification
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At age 61, only one of the two requirements (being at least 59 1/2 years old) to take a qualified withdrawal is satisfied. The five-year waiting must also be satisfied. This waiting period counts from Jan. 1 of the first tax year that you made a contribution. For example, if you made your first contribution on Jan. 15, 2007, for the 2006 tax year, the five year waiting period would be counted from Jan. 1, 2006, meaning you could not take qualified withdrawals until 2011.
Significance
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Qualified withdrawals can be taken tax-free from your Roth IRA. Non-qualified distributions may be taxable depending on if you are withdrawing earnings or contributions. Contributions always come out before earnings, and can be taken out tax-free and penalty-free at any time. Earnings are taxable and subject to an early-withdrawal penalty of 10 percent, unless an early withdrawal exception applies.
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Reporting
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At the end of any year in which you have taken a withdrawal from your Roth IRA, you will receive a form 1099-R from your financial institution that shows how much you took out and how much, if any, is subject to taxes. You must report all distributions, including your nontaxable distributions on your taxes using form 1040 or form 1040A. On form 1040, nontaxable distributions are reported on line 15a and taxable contributions are reported on line 15b. On form 1040A, nontaxable distributions are reported on line 11a and taxable contributions are reported on line 11b.
Considerations
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If you have rolled over money into your Roth IRA from other retirement accounts, such as traditional IRAs or 401k plans, you must count the five-year waiting period separately for each rollover. For example, if you opened the Roth IRA in 2000, but performed a rollover from your traditional IRA in 2010, you would have to wait until 2015 before you could withdraw the money from the rollover without paying an early-withdrawal penalty.
Features
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Even if you can take a qualified withdrawal, you may benefit by leaving the money in the account if you do not have an immediate need for it. When you take the money out of the Roth IRA, it is no longer tax-sheltered, meaning that any earnings on the money in the future will be subject to income taxes.
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