Penalties for Roth IRA Early Withdrawal

by Mark Kennan

    If you take a qualified withdrawal from your Roth IRA, the entire distribution is tax-free. Qualified withdrawals for Roth IRAs must meet two criteria. One, your Roth IRA must have been open for five years. Two, you must be either 59 1/2 years old, permanently disabled, or using up to $10,000 to buy a first home. When you take an early withdrawal from your Roth IRA, also called a non-qualified withdrawal, you may have to pay extra in income taxes and early withdrawal penalties.

    Contributions Withdrawn Penalty-Free

    Since you didn't get a tax break for putting money in your Roth IRA, the IRS doesn't charge you taxes or penalties when you take out your contributions, no matter when that occurs. According to IRS Publication 590, when you take a non-qualified Roth IRA withdrawal, you first remove all of your contributions. For example, if you have a Roth IRA containing $35,000 of contributions and $10,000 of earnings, you can withdraw up to $35,000 tax-free and penalty-free any time you want.

    Earnings Taxable

    If you're taking a non-qualified withdrawal, once you've taken out all of your contributions, you have to pay income taxes on the earnings you withdraw. Though not technically a penalty, it's an extra cost that you wouldn't have had to pay if you took a qualified distribution. The earnings are taxed at your ordinary income tax rate. For example, if you fall in the 28-percent income tax bracket and you take out $5,000 of earnings, you would owe $1,400 in income taxes.

    Early Withdrawal Penalty

    On top of the income taxes, your earnings are also subject to a 10-percent additional tax penalty unless an exception applies. For example, if you take a $5,000 early withdrawal of earnings, you owe not only income taxes, but a $500 early withdrawal penalty.

    Penalty Exceptions

    You can avoid the early withdrawal penalty if you meet the criteria for an exception, but the exceptions don't exempt you from paying the income taxes. For example, if you don't satisfy the five-year requirement to take a qualified distribution, but are 59 1/2 years old, you won't owe the early withdrawal penalty on the earnings because you qualify for an exception. The same treatment applies to withdrawals taken before the five-year requirement is satisfied if you suffer a permanent disability, or if you are taking out up to $10,000 for buying a first home. Other exceptions include medical expenses exceeding a specified percentage of your income, medical insurance premiums while you're unemployed, or expenses for higher education.

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    About the Author

    Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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