A common question people have when they open or consider opening a Roth IRA (Individual Retirement Agreement) is when can they cash it out. And the answer is simple, whenever! However, there are some stipulations to that statement (of course nothing is ever cut and dried when you involve the federal government!!!). So let’s unpack the whenever statement and understand what we can take out when and if there are any penalties involved with taking out money at a given time.
You can cash out all you want after age 59 1/2
Perhaps this is the question that people are after when they ask the question. Starting at age 59 1/2 you can literally take out as much of the money as you like from your Roth IRA account as your heart desires without any penalty. This money comes out completely tax free (you paid the taxes on the money prior to putting it in the Roth). So once you hit the ripe age of 59 1/2 withdraw to your hearts content.
All contribution money can be taken out at any time
This is a somewhat common understanding, but a fair amount of people don’t know about it. Whatever money you put in you can take out at any time without penalty. So if you were to contribute $4,000 for tax years 2005, 2006, 2007, 2008 and 2009 you would have contributed $20,000 over these years. Now assuming that you were smart enough to avoid the disaster that hit the market at the end of that period and you now have significantly more than the $20,000 in the account. At any time you can withdraw the $20,000 you put into the account without any penalty.
You can withdraw at any time with a 10% penalty
If you really do want to withdraw the money in your account, you can withdraw it at any time provided you are willing to pay an early withdrawal penalty. Whatever money you put into the account is tax free, so similar to the above example you would withdraw the first $20,000 tax free. However, assuming you built the account up to $30,000 over that time you would have to pay a penalty on the remaining $10,000 in earnings. In addition, you would be subject to federal taxes on the $10,000 unless you are able to qualify for a few exceptions.
So there you have it. A quick synopsis of when you can cash out a Roth IRA and what penalties are incurred if you do.
