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Roth IRA question

Posted: Thu Apr 09, 2015 8:58 pm
by mptness
Is an early distribution from a Roth IRA that is equal to or less than the contributions always free of taxes and penalties, or does the Roth have to be in existence for 5 years to avoid the 10 percent penalty?

Re: Roth IRA question

Posted: Thu Apr 09, 2015 9:03 pm
by DSInvestor
Fairmark.com has a great section on Roth IRA and other Roth retirement accounts:
http://fairmark.com/retirement/roth-accounts/

At the page linked above, you will find a section on Roth Distributions. Read the pages on Distribution Overview and Tax Free distributions from Roth IRA.

Re: Roth IRA question

Posted: Thu Apr 09, 2015 9:22 pm
by mptness
Thank you for the link. I will take a look for the answer. I have researched this a bit and I remain confused about the 5 year test ( does it only apply to earnings). In the meantime I was hoping one of the IRA experts could answer my question.

Re: Roth IRA question

Posted: Thu Apr 09, 2015 9:22 pm
by Seattlenative
mptness wrote:Is an early distribution from a Roth IRA that is equal to or less than the contributions always free of taxes and penalties, or does the Roth have to be in existence for 5 years to avoid the 10 percent penalty?
Great question. Here's an IRS publication addressing this specific issue:
http://www.irs.gov/pub/irs-pdf/p590b.pdf

Re: Roth IRA question

Posted: Thu Apr 09, 2015 9:38 pm
by mptness
Thank you for the link to the IRS publication. I will have to see if I can find the answer there... Although, you may call me lazy, but I was hoping someone knew. Does the 5 year rule apply to contributions and earnings, or just to earnings?

Re: Roth IRA question

Posted: Thu Apr 09, 2015 9:47 pm
by Rob Bertram
You can always withdraw contributions tax and penalty free. The 5-year rule does not apply to contributions. The rest is complicated, but the answers are summarized nicely in the fairmark website.

Re: Roth IRA question

Posted: Thu Apr 09, 2015 9:58 pm
by mptness
Thanks Rob Bertram! I will look at the fairmark website in more detail. Thanks also to Seattlenative and DSInvestor! You all are what makes this forum a great resource for information about investing!