Rethink Your Rollover

Roth IRA withdrawal contributions

Question: I have had a Roth IRA for two years. Can I withdrawal the amount I have contributed without penalty?

Basically, what I think comes into question is that I have not had the account for 5 years. Does that only come into play when making qualified distributions or would that affect me while only taking out the contributions I have made?

Answer: Hello. From the IRS:
In general, you do not include in your gross income qualified distributions from your Roth IRA. You may have to include part of other distributions from Roth IRA(s) in your income.

A qualified distribution is generally, any payment or distribution made after the 5–taxable–year period beginning with the first year for which a contribution was made to a Roth IRA set up for you, and that is made on or after you reach age 59 1/2, made because you are disabled, made to a beneficiary or to your estate after your death, or that is made to buy, build, or rebuild a first home
Part of any distribution that is not a qualified distribution may be taxable as ordinary income and subject to the additional 10% tax on early distributions. Distributions of conversion contributions within a 5–year period following a conversion may be subject to the 10% early distribution tax, even if the contributions have been included as income in an earlier year. Refer to Topic 558 , Early distributions from IRA’s, for more information.

If you converted your traditional IRA to a Roth IRA, but were not eligible to do so, your conversion will be treated as a taxable distribution from your traditional IRA and a regular contribution to your Roth IRA, and may be subject to additional tax on early withdrawals and an excise tax on excess contributions, unless the converted amount is recharacterized.

Hence, if it were a conversion originally from a traditional IRA, it would be taxable and you wouldhave to pay a 10% penalty. Ten percent penalty is 10% of your income tax liability. So it’s a five year vesting requirement and you get penalized for withdrawing prior to age 59 1/2, unless a govt agency stole your IRA. Then you would not pay the ten percent penalty. Here’s another exception to penalty. I do not see the other 7 exceptions to penalty that the IRS lists regarding a withdrawal from a traditional IRA:
A distribution used to buy, build or rebuild a first home must be used to pay qualified costs for the main home of a first time home buyer who is either yourself, your spouse, or you or your spouse’s child, grandchild, parent, or other ancestor.

Money Matters: Roth IRA Contributions

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