When Can You Collect on a Roth IRA?

Congress instituted Roth IRAs as part of the 1997 Taxpayer Relief Act. Since the contributions cannot be deducted from your taxes, the Internal Revenue Service has special rules concerning distributions from Roth IRAs.

Misconceptions

The IRS does not prevent you from removing money from your Roth IRA at any time. Instead, the IRS discourages early distributions by imposing penalties on certain nonqualified withdrawals.

Time Frame

In order to for a withdrawal to be qualified, at least five tax years must have passed since you made your first Roth IRA contribution, and either you must be over 59 1/2 years old, permanently disabled, or using no more than $10,000 for your first home.

Early Withdrawal Effects

If you take an early withdrawal, the contributions that you take out are tax free and penalty free. However, if you remove all of the contributions, the earnings that are withdrawn are subject to a 10 percent penalty and income taxes.

References

• Internal Revenue Service: Publication 590 (Chapter 2)
• Congressional Budget Office: Legislative History of IRAs