Thinking About Withdrawing from Your Roth IRA? Make Sure You Know the Tax Consequences Before You Do!

Some Roth IRA withdrawals are taxable.

Even worse, some can be socked with a 10 percent early withdrawal penalty tax, and this can happen even when there’s no income tax hit.

Any withdrawals from any of your Roth accounts are federal-income-tax-free qualified withdrawals if you, as a Roth IRA owner,

  • are age 59 1/2 or older, and
  • have had at least one Roth IRA open for over five years.

Such withdrawals are usually state-income-tax-free too. Good!

You must pass both the age and the five-year tests to have a qualified withdrawal.

The five-year period for determining whether your withdrawals are qualified starts on January 1 of the first tax year for which you make a Roth contribution. It can be a regular annual contribution or a conversion contribution.

A non-qualified withdrawal is potentially subject to both federal income tax and the 10 percent early withdrawal penalty tax. The only exceptions are

  • when the special first-time home purchase provision applies, or
  • when the account owner (that would be you) is disabled or dead.

If you have a Roth and want to take a non-qualified withdrawal, make sure you know the tax consequences. If you have questions, please call us right away.

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