Roth IRA question

[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?

[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.

[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.

[Seattlenative]

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

[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?

[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.

[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!