Taxes on Roth IRA Withdrawals

​Roth IRA’s have very specific rules in regard to the handling of taxes on withdrawals. There are several nuances to be aware of before taking distributions…

​The main elements to consider with Roth IRA withdrawals are age, first account contribution date, and amount of contributions vs. earnings.
 
Your basis (amount of contributions over time) can be withdrawn from Roth IRA’s at any time, free of taxes and penalties.
 
The taxes on earnings depends on whether you’re 59½ years old, and if 5 years has passed since the 1st tax year for which a contribution was made to the Roth account.
 
FOR THOSE UNDER AGE 59½…
 
…and Account Period (described above) is Less Than 5 Yrs Old:
Earnings are subject to taxes and penalties. While taxes are due regardless of circumstances, penalties may be avoided on earnings withdrawn/used in the following situations:

• Total & permanent disability
• Certified with terminal illness
• Beneficiaries of deceased IRA owner
• 1st-time home purchase (up to $10,000 lifetime max)
• Unreimbursed medical expenses that exceed 7.5% of adjusted gross income
• Paying medical insurance premiums, while unemployed
• Qualified higher education expenses
• IRS levy
• Qualified expenses related to a birth or adoption
• Federally qualified disaster

 
…and Account Period is More Than 5 Yrs Old:
Earnings are not taxed or penalized if you meet one of the following conditions:

• 1st-time home purchase (up to $10,000 lifetime max)
• Disability or death

 
FOR THOSE OVER AGE 59½…
 
…and Account Period is Less Than 5 Yrs Old:
Earnings are subject to taxes, but not penalties.
 
…and Account Period is More Than 5 Yrs Old:
You can withdraw money from your Roth with NO taxes or penalties.

Inherited Roth IRA's have different implications, pending your situation. That article is for another day!