Roth IRA Early Distribution Penalties

Roth individual retirement contributions are not subject to income taxes, unlike traditional IRA contributions. As a result, the Internal Revenue Service subjects early withdrawals from Roth IRAs to different rules.

Early Distributions

A qualified distribution of a Roth IRA refers to any money taken out of the account after the account has been open for five years and either the account holder is 59 1/2 or older, has suffered a permanent disability, or is using up to $10,000 for the purchase of a first home.

Penalties

Income taxes and the 10 percent early distribution penalty only apply to the early withdrawal of earnings from the Roth IRA. Early distributions of contributions come out tax-free and penalty-free and come out before any earnings are withdrawn.

Exceptions

The IRS excepts early withdrawals taken from the early withdrawal penalty, but not income taxes, for higher education costs or medical expenses exceeding 7.5 percent of your adjusted gross income. If your Roth IRA does not meet the five year test and you take an early withdrawal for the purchase of the home or a permanent disability, the early withdrawal penalty is waived.

References

• Internal Revenue Service: Publication 590 (Chapter 2)
• Smart Money: Tapping Your IRA Penalty-Free