What Is the Penalty for Early Roth IRA Withdrawal?

A Roth IRA provides a tax shelter for retirement savings.

Unlike a traditional IRA, Roth IRAs allow for withdrawals that are generally tax-free, under certain conditions. Also, there are fewer withdrawal restrictions with a Roth, but early withdrawal can still bring a penalty.

Function

To withdraw without penalty, the money in your Roth IRA must remain in the account until you are 59½.

Penalties

Non-qualified withdrawals from your Roth IRA will incur a 10 percent penalty. You'll also pay income taxes on any money taken out.

Exceptions

Several exceptions allow you to withdraw your money from a Roth IRA early without penalty: if you are permanently disabled, use the money for educational expenses, have medical expenses exceeding 7.5 percent of your adjusted gross income or have an IRS tax lien. You can also withdraw up to $10,000 for a first-time home purchase.

Time Frame

You can withdraw money that was contributed in the same calendar year as long as it is taken out before the contribution deadline and the IRS treats the contribution as if it were never made.

Purpose

The restrictions on early withdrawals prevent people from abusing the tax benefits of Roth IRAs. These benefits include allowing the money to grow tax-free; you take out the money and any earnings at retirement without paying taxes.

References

• Roth IRA Rules
• IRS IRA Withdrawal Penalties