How to Make a Roth IRA Withdrawal

Roth IRAs were established in 1998 as a result of the Taxpayer Relief Act of 1997. They provide a benefit that isn't available for any other form of retirement savings. Since contributions are made with already taxed income, money contributed to a Roth IRA may be withdrawn tax free at any time. Even better, if the investor meets certain requirements, all earnings are tax free at the time of the IRA withdrawal.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Recent Roth IRA statement
• Financial institution contact information

1. Determine eligibility for an investor to make a tax free Roth IRA withdrawal. Consider type of withdrawal on both contributions and earnings or if the earnings portion may be taxed.
2. Qualify for an entire tax free withdrawal by either being at least age 59.5 years or one of the following: disabled; a deceased owner's beneficiary; use for qualified first-time home buyer costs (lifetime limit of $10,000). There are additional ways to qualify (see Resources).
3. Contact the financial institution which holds your Roth IRA and request the withdrawal. Meet with a financial advisor and process the withdrawal request.
4. Withdraw funds in the following order according to Roth IRA rules: withdrawals of contributions to a regular Roth IRA; withdrawals of conversion contributions in a chronological order beginning with the funds deposited first then withdrawals of all earnings.
5. Be prepared to pay an early withdrawal penalty of 10 percent on the amount of the distribution if the owner is less than age 59.5 years or an exception applies.

Tips & Warnings

• For tax purposes, all Roth IRAs, even those held at different investment companies, are considered as one single account.
• Additional qualification for tax free withdrawal include use for medical expenses greater than 7.5 percent of adjusted gross income that are also non reimbursable; use for medical insurance premiums if there's a job loss; use for qualified education expenses less than the distribution amount; use for an IRS levy or withdrawals of equal amounts that occurs in period payments based on life expectancy.
• Special Roth IRA rules apply to Conversion IRAs. They may be subject to a ten percent IRS penalty on a portion of the withdrawal if the funds are withdrawn less than five years after making the conversion regardless of the investor's age.
• A non qualified distribution imposes an ordinary income tax at the time of distribution. This may be in addition to an early withdrawal penalty.