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Roth IRA Withdrawal

It is important to know the eligibility requirements and contribution limits for a Roth IRA since these will determine if you are qualified to apply for one. We must also take into consideration that there are governing rules regarding Roth IRA withdrawal. These rules will be further discussed as we go along.

There are certain guidelines you need t follow if you want to withdraw from your Roth IRA without penalty. These guidelines are set by the IRS to ensure smoother transactions. When we talk about qualified IRA distributions, we know that the principal that we deposited as long as the interest earnings are tax-free.

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Provided that an account is qualified, IRA distributions can be made either five years after opening the account or after you have reached the age of 59 and a half. Qualified distributions can also be made before reaching the age of 59 and a half if the first contribution was made five years prior to the distribution and falls under one of the following causes: purchasing your own home, supporting your education, compensating for your disability or medical expenses, and, rolling over the distribution to another qualified IRA pan. Any withdrawal that does not fall under the following guidelines is listed as an early withdrawal and is subject to a 10% early withdrawal penalty as well as income taxes based on the amount you have withdrawn.

We must also look at the distinction that applies to the difference between an early withdrawal penalty, and one that is not qualified. In the case that a distribution is made on a non-qualified account, the full rate of income tax is imposed on the total distribution that was made.

Roth IRA penalties, alongside taxes can be quite high, that is why it is very important to take note of the guidelines as well the exemptions to avoid penalties. The exemptions are discussed as follows:

a) The owner of the IRA becomes disabled or seriously ill, in which the details follow those which are listed in the IRS Code documentation.

b) In the case that the IRA owner dies, the penalty does not apply to the necessary closure and withdrawal of funds pertaining to the death.

c) If over the owners life expectancy, the owner made substantially equal periodic payments, the penalties are considered waived.

d) If a distribution or withdrawal is used as payment for expenses not exceeding seven and a half percent of the MAGI, also provided that it has not been reimbursed.

e) In the case that the owner has been unemployed for more than 12 weeks, provided that, at the time, he has been receiving unemployment compensation, penalty-free distributions can be made for medical premiums.

f) For a first home purchase, a single penalty-free distribution can be made, provided that it does not exceed the $10,000 mark.

g)Payment for higher education expenses for the owner or family members can also be made penalty-free; and,

h) In case the IRS places a levy against the Roth IRA, then the taxes that are due can be paid back using a penalty-free early withdrawal.

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Posted in Home Post Date 07/31/2018


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