When Can You Access a Roth IRA?

The Rules of Accessing Roth IRA Funds Explained

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A Roth IRA (individual retirement arrangement) is a retirement account that allows you to save and invest money then withdraw it tax-free during your golden years. Unlike a traditional IRA, you make contributions to a Roth IRA from after-tax dollars. 

Your contributions in a Roth IRA can be accessed at any time, for any reason. However, if you withdraw your earnings before you reach the age of 59½, you may have to pay a tax penalty unless you meet certain conditions.

Let’s learn how the Roth IRA withdrawal process works, when you can access your earnings, and how to avoid paying penalties.

Key Takeaways

  • Roth IRAs allow you to save and invest after-tax dollars then withdraw it at any time without a tax penalty or fee.
  • You usually cannot withdraw earnings before your retirement age without taxes or early withdrawal penalties. You can only withdraw your principal.
  • In some circumstances, such as when you're purchasing your first home, you withdraw earnings out of your Roth IRA without a tax penalty.
  • If your Roth IRA account hasn't been open for at least five years, you may have to pay a penalty when you pull money out.

You Can Access Contributions Anytime 

Your Roth IRA account holds both your contributions and earnings on them. The contributions are the money that you've put in after taxes. Your earnings are the money that your investments have made.

You can access your contributions at any time, for any reason. You don't have to pay taxes on them when you withdraw them and there's no penalty for early withdrawal. This is one of the main benefits of a Roth IRA—you can access your contributions.

Nondeductible contributions can be withdrawn from your IRA at any time without penalty. A nondeductible contribution is one that you don't get a tax deduction for when you make it.

Since you've already paid taxes on the money you're contributing to a Roth IRA, the IRS doesn't penalize you for withdrawing that money. No matter how old you are, you can withdraw the amount of money you put in without penalty.

The IRS determines whether you’re pulling out contributions or earnings from your Roth IRA based on this order of withdrawal:

  1. Regular contributions
  2. Rollover contributions
  3. Your earnings

So, you can withdraw as much as you’ve contributed then your withdrawals count as rollover contributions or earnings and taxes you accordingly. 

The 5-Year Rule for Roth IRA Withdrawals

The 5-year rule can be a bit confusing, but it's important to understand if you want to take money out of your Roth IRA without penalty.

Essentially, the 5-year rule states that you can take earnings out of your Roth IRA without penalty as long as the account has been open for at least five years. If your account is less than five years old, you will have to pay a 10% tax penalty on the money you withdraw, in addition to any applicable early withdrawal fees.

The timeline starts on the first day of the tax year for which you made your first contribution to the Roth IRA. So, if you opened your Roth IRA on April 15, 2020, and contributed money for 2020, your five-year period would begin on Jan. 1, 2020.

For example, let's say you opened a Roth IRA in 2019 and contributed $2,000. In 2022, you want to withdraw $2,500.  You can take out the $2,000 that you contributed. But since your account has been open for less than five years, you'll have to pay taxes on the remaining $500. You may also have an early withdrawal penalty, depending on your age and why you're withdrawing the money.

Even if you are over 59½ or are taking the money out for a qualified reason, you'll pay taxes (but not penalties) on earnings you withdraw if your account is younger than five years old. 

Your Age: Younger Than 59½ 

   Qualified Withdrawal  Unqualified Withdrawal 
 Account Less Than 5 Years Old Must Pay Taxes
No Penalty
Must Pay Taxes Must Pay Penalty 
 Account More Than 5 Years Old No Taxes
No Penalty
Must Pay Taxes Must Pay Penalty

Your Age: Older Than 59½ 

Account Less Than 5 Years Old  Must Pay Taxes
No Penalty
 N/A
 Account More Than 5 Years Old No Taxes
No Penalty 
 N/A 

As you can see, your age, the age of your account, and the reason you’re pulling money out all play a role in determining whether you’ll be paying fees and taxes. 

Qualified Early Distributions

Qualified distributions are those that are taken out for specific reasons outlined by the IRS. You can take qualified distributions without having to pay the 10% penalty, regardless of how long your Roth IRA has been open. However, you may still have to pay taxes on this money. 

Here are some examples of qualified distributions:

  • You're over the age of 59½
  • You're disabled
  • You’ve recently had a baby or filed for adoption 
  • You're using the money to purchase a first home
  • The money is being used to pay for college tuition

If you're not sure whether or not your distribution is qualified, talk to your accountant or financial advisor. They'll be able to tell you if you're eligible for a penalty-free withdrawal.

How Roth IRA Withdrawals Work in Retirement

If you're at least 59 1/2 and you've had your account open for at least five years, you can withdraw your earnings without having to pay a fee or pay taxes on your earnings.

You'll need to report it on IRS Form 8606. This form is used to keep track of your Roth distributions.

Unlike traditional IRAs and other investment options, you aren't required to start withdrawing money from your Roth IRA. There aren't any required minimum distributions (RMDs). Instead, you can leave the money in there for as long as you'd like.

Because of this feature, the Roth IRA is a good way to pass money down to your children or grandchildren. They can take advantage of the tax-free growth. 

Frequently Asked Questions (FAQs)

Under what condition are you unable to make tax-free withdrawals from your Roth IRA?

To make tax-free withdrawals on your Roth IRA earnings, you must meet two qualifications. First, your Roth IRA must have been open for at least five years. Second, you must be over 59½ or have a qualifying event. 

What is the penalty for unqualified early withdrawals from a Roth IRA?

If you're taking money out of your Roth IRA before it's been open for at least five years, you'll have to pay a 10% penalty on top of any applicable early withdrawal fees. Because of this fee, it’s important to keep track of how long you’ve had your account. This will help you adhere to the Roth IRA rules

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