Before getting a Roth IRA it is definitely a good idea to make sure you know the regulations regarding withdrawals. Roth IRA withdrawal rules differ from traditional IRAs and in this article we’ll be going through a few of the most important aspects.
To begin with you should be aware that in many cases financial advisers will call withdrawals distributions. There are two main types of distributions from a Roth IRA account and each are subjected to Roth IRA rules.
Qualified Distribution
A qualified distribution simply means that you want to withdraw after five years of having the account and you’re over the age of 59 1/2. In this case you shouldn’t be subjected to any penalties for withdrawing money.
Early Withdrawals
Early withdrawals are a bit more complicated and subject to more rules. In general, if you withdraw money from your account before you reach the age of 59 1/2 or before you reach the five-year limit you’ll be subjected to a 10% tax penalty. In most cases you’ll be forced to pay the penalty but there are some exceptions.
Exceptions to Roth IRA Withdrawal Rules
Here are a few of the most common reasons why you might be exempt from having to pay the 10% tax penalty on an early withdrawal.
1. If you’re disabled you may be able to get an exemption from the tax penalty. However there are some strict rules as to what constitutes disabled and which disabilities are eligible to receive early withdrawals without penalties so you need to talk to your financial adviser about this first.
2. If you want to use the money to buy your first house then you may be able to get an exemption from having to pay extra tax.
3. If you want to use the money to go on to higher education than depending on what you study you may be able to get exemption.
4. If you’ve recently become unemployed and need the money for medical insurance for you or your family then some cases you may be able to withdraw money from your Roth IRA without incurring a penalty. However there are some terms and conditions of this.
There are other reasons that you might be exempt from a tax penalty when withdrawing your money from your Roth IRA early so if you feel that you have to do so it’s often a good idea to check up on the Roth IRA withdrawal rules just in case.