How Much is the Penalty to Take Money Out of a Roth IRA?
Not all money withdrawn from a Roth IRA is taxable. When regular income tax is assessed on a withdrawal, a 10 percent tax penalty is also sometimes incurred.
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Non-Taxable Contributions
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You must know the tax year that your Roth IRA was first established and you'll need a record of your Roth IRA contributions for all years. There is no income tax or 10 percent penalty on withdrawal of your contributions if the Roth IRA has been open for at least five years. A separate five-year period applies to every conversion from a traditional IRA. A separate five-year period also applies to each rollover from an employer retirement plan.
Non-Taxable Earnings
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Withdrawals in excess of your contributions is money that was earned in the Roth IRA. Earnings withdrawals are taxable unless you are age 59½ , permanently disabled or are using the distribution to pay amounts as a first-time homebuyer. If the earnings withdrawal is not subject to regular income tax, there is no 10 percent penalty.
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Taxable Withdrawals
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If a withdrawal is taxable, you will also owe the 10 percent penalty unless you use the money to pay higher-education expenses, medical expenses or health insurance premiums after a job loss; meet the rules for qualified distribution to military reservists or disaster victims; or take distributions in a series of substantially equal annual amounts based upon your life expectancy. Taxable withdrawals for other purposes incur the 10 percent penalty.
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