Roth IRA Withdrawal Options

Not all Roth IRA withdrawals add to your tax bill.

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Roth individual retirement accounts were first made available in 1998 and offer after-tax retirement savings. These accounts typically offer the greatest benefit if you anticipate paying a lower tax rate in the year you're making a contribution than in the year you'll take distributions. However, they also allow you to pay less in taxes and penalties than you otherwise would with a traditional IRA if you need to take an early withdrawal.

Qualified Withdrawals

Ideally, you won't have to withdraw money out of your Roth IRA until you can take qualified distributions, because at that point all of the money, including the earnings, comes out tax-free. To qualify, the account must have been open for five tax years, which count from Jan. 1 of the first tax year that you made a contribution. Also, you must be either 59-1/2, permanently disabled or taking out up to $10,000 for a first home. Failure to meet these requirements results in a non-qualified distribution.

Early Withdrawals

Just because you aren't taking a qualified withdrawal doesn't mean you'll face a hefty tax bill. In fact, if your withdrawal doesn't exceed the amount of contributions in the Roth IRA, you won't owe any taxes at all. Only after you've taken out all of your contributions do you start taking out earnings, which do count as taxable income and, unless you qualify for an exception, are also hit with a 10 percent tax penalty. For example, say your Roth IRA contains $20,000 of contributions and $8,000 of earnings. If you take out $20,000, it all comes out tax-free, because you're just withdrawing contribution. But, if you take out $21,000, that last $1,000 is taxable income and subject to the 10 percent penalty if it's not a qualified withdrawal.


You can avoid the 10 percent penalty, but not the income taxes, on early withdrawals of earnings if you qualify for one or more exemptions. Blanket exceptions, including a permanent disability and qualified reservist distributions, allow you to withdraw your entire Roth IRA balance without penalty. Other exceptions only exempt a specific dollar amount, such as higher education expenses, medical premiums exceeding 7.5 percent of your adjusted gross income and medical insurance premiums while unemployed. These exemptions are cumulative, so you can use more than one. For example, say you spend $5,000 on college tuition for your son and $3,000 on medical insurance premiums while you're unemployed. You can avoid the penalty on $8,000 of early withdrawals of earnings.

Required Minimum Distributions

If you're the original owner if the Roth IRA, you're never required to take minimum distributions, which you are required to do if you have a traditional IRA. Similarly, if you inherit a Roth IRA from your spouse and elect to treat it as your own, you also aren't required to take minimum distributions. This allows you to maximize the length of time the money can grow tax-free. However, if you inherit a Roth IRA, you are required to either empty the Roth IRA by the end of the fifth year following the decedent's death or take minimum distributions every year for the remainder of your life expectancy.