A Few Major Exceptional Roth IRA Withdrawal Rules Which May Help You To Take Money Out Of Roth IRA Roth IRAs are governed by the IRS; as such there're many Roth IRA withdrawal rules that must be followed before you take money out of your account. In this article we will discuss Roth IRA distributions; when they can be taken, when and if they're taxable, when and if penalties might apply, and any exceptions to the Roth IRA withdrawal rules. Usually, distributions that are considered "qualified" and distributions that represent contributions you made to the Roth IRA are not taxable. In addition, Roth IRA funds that are transferred from an account to another (Roth IRA account), are also not taxable. But, Roth IRA withdrawals that are not "qualified" or is not a return of your original contributions might be subject to taxes and/or penalties. Roth IRA Contributions Can Be Withdrawn Tax Free at Any Time Let's talk about return of contributions first. What this means is that you could get the contributions made to your Roth IRA out at any time, for any reason, without taxes or fines. Most people are unaware of this rule, and it's a crucial one. The ability to get your contributions out tax and penalty free makes the Roth IRA a very flexible investment vehicle. The ability to get your contributions out at any time means you can use your Roth IRA as an emergency fund, to save for college costs, or for any financial goal. Let us hope Congress doesn't ever change this rule! Qualified Distribution Rules for Taking Earnings Out of a Roth IRA While you're able to get your contributions out at any time without worrying about paying taxes and/or penalties, this is not true for the earnings on your contributions. To get the earnings from your Roth IRA without paying taxes or penalties, you must follow the "qualified distribution" rules. Thus what is a qualified Roth IRA distribution? According to the IRS, a qualified distribution is a Roth IRA withdrawal that: 1. Is made five years after the Roth IRA is setup and contributed to, or 2. Is made: - Once you reach age 59 1/2, - Because you are disabled, - To a beneficiary (or your estate) after death, or - Meets the first time home buyer exception (more info later) Any withdrawals that meet the requirements above won't be subject to income taxes. However, if you take a distribution that is not considered a qualified distribution, you might have to pay a 10% penalty on the amount withdrawn. Exceptions to the Early Withdrawal Penalty If you take a withdrawal out of a Roth IRA that does not represent your original contributions, or isn't a "qualified" distribution as defined earlier, then you may be subject to a 10% penalty (the IRS calls this extra tax). Thankfully, there are several exceptions to the 10% early withdrawal penalty. Following are some situations in which the 10% early withdrawal penalty may not apply: - You are age 59 1/2 or older, - You are disabled, - You qualify as a first time home buyer (distributions of up to $10,000 could be taken penalty free to be used towards the purchase of your very first home), - The distributions are part of a series of substantially equal payments (i.e., these payments must generally last for five years or until you reach age 59 1/2, whichever is longer), - You are using the withdrawal to pay for significant un-reimbursed medical expenses, or - The distribution is being used to pay for qualified higher education expenses. There're a few other exceptions, but these are the major ones. How You Will Get The Best Financial Planner To Reach Your Goal Many people hire financial planners to help them meet their financial goals. Whether you are a beginner investor with very little experience or whether you have a good knowledge and understanding of financial planning topics, a financial planner can be a valuable asset when planning for your financial goals. Three Ways A Financial Planner Can Easily Help You Attain Your Very Own Financial Objectives Many people wonder exactly what a financial planner does, and how they can help you. Here are just three ways a financial planner can help you achieve your financial dreams and goals. Three Major Reasons To Use A Fee Only Financial Advisors There are three different types of financial advisors: the commission broker who sells a product for a commission, the fee-based advisor who provides investment management for a percentage of the assets invested, and the fee only financial planner who provides a comprehensive financial plan for an hourly fee. Brand New Policies Imply More People Doing Roth IRA Conversions In 2010 As we near the end of 2010, countless people have already done Roth IRA conversions, and many others are questioning if a Roth IRA conversion in 2010 is the right move for them. Social Security Widow Benefits - What Happens To Your Social Security Income When One Spouse Passes Away When Social Security was first established, it only paid retirement income to workers who qualified. It was later amended to include benefits for spouses and survivors, which made it more of a family or insurance plan, instead of just a retirement plan. How The Social Security Spousal Benefit Works Can a spouse collect on her husband's social security if she reaches retirement age before her husband? No. In order for a wife to collect Social Security benefits on her husband's earnings the following requirements must be met: Social Security Old Age Earnings: Ideas To Help You Maximize Your Social Security Income As you get closer to retirement, choosing when to take your Social Security may seem like rolling the dice. There are so many decisions to make, such as: |
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