Question about taking money out early from a Roth IRA?

Question

I've heard two different stories.

Here's the scenario. If I put $5k in my Roth IRA this year, and I need to withdraw $2k of it next year, are there any taxes or penalties if I am younger then 59?

Answer 1

The answer to your stated question is a simple yes there are.  

The answer to the question (you didn't ask) of how much in taxes and/or penalties is too complex to cover adequately in this forum.  To get an idea of just how complex it is, look at the discussion at http://www.fool.com/Money/AllAboutIRAs/a...

Don't miss the link to Part III - non qualified distributions.

In short, if you take an early distribution set aside a chunk if it to pay for taxes, penalties, and professional tax preparation of your next return,

Answer 2

Megan M's and DM's answers are referring to withdrawing INCOME from a Roth IRA, not contributions.

Regular CONTRIBUTIONS can be withdrawn tax-free and without an IRS penalty at any time.

There are two requirements to qualify for tax-free withdrawals of INCOME on a Roth:

1.  Five-Year Test must be met. (Must be five years after the first year for which Roth Contributions were made).

    

2. One of the following conditions must apply:  

- You are over age 59 1/2.

- Funds are going to your beneficiary upon your death.

- You are using the funds for a first-time home purchase.

- You have become disabled.

Answer 3

Here's the truth: you can take out money tax-free and penalty-free if your IRA has been held for 5 years or more AND if it's taken for any of the following:

1 - first-time home ownership (10K lifetime limit)

2 - death or disability

Other than that there will be ordinary income tax and 10% penalty, unless you're using it for qualified higher education, medical expenses of more than 7.5% of your AGI, or to buy health insurance after being on unemployment for 12 weeks or more.  Then there's still a tax but no penalty.  Either way, removing money from a retirement account is likely not a good idea.  If I can answer any other financial questions email me at [e-mail].  Hope it helps!

Answer 4

You need to pay it back to avoid penalties.  You can take a loan from it talk to your administator and see what terms would apply

Answer 5

NO ABSOLUTELY NOT... a roth ira is an AFTER tax contribution...you may withdraw at any time, without penalty, the amount of $ you invested with your after tax money...however, if you put in 2000 and it goes up to 3000 and then you try to withdraw 2,500...you will be liable for taxes on the 500, not the 2,000.  that's a fact...Google it, yahoo it, call the IRS whatever.

Answer 6

The 10% penalty for early withdrawal ("penalty") applies to IRA and Roth IRA distributions made to those under age 59 ½ at the time of distribution, unless a specific exception applies. "Tax Prophet"

The exceptions are major medical expenses, college, or buying a house, you will be taxed on the amount again (you put in money that was already taxed) unless you meet the age requirements of 59 1/2.

After 59 1/2 there is no taxes or penalities on withdrawls.