Many people choose a Roth IRA for retirement savings, because of the account’s options to allow you to grow your money tax-free. While your money is in the Roth individual retirement account, it can grow, and when you take it out during your retirement, there is no obligation to pay taxes. In addition, you can withdraw the money you put into a Roth individual retirement account before you retire, but you may wish to avoid doing so in order to maximize the benefits of this type of account.

About Roth IRAs

A Roth IRA is a specific type of individual retirement account with tax advantages. You contribute after-tax money to the account, which means that the contributions are not tax-deductible. However, once you begin to withdraw the funds from the account, this money is tax-free, including on the income that the account has received from investments.

The primary difference between a Roth IRA and a traditional IRA is how the two types of accounts are taxed. Traditional IRAs are funded with pre-tax dollars. Contributions are deductible, but you pay taxes when you make withdrawals. Roth individual retirement accounts are the opposite; here, you fund the account with after-tax dollars and enjoy tax-free withdrawals. A Roth IRA is a great option for many people, especially if you expect your marginal tax rate to be higher in retirement than they are when making contributions.

There are limits on the contributions you can make to a Roth IRA. If you file your taxes as a single person, the upper income limit for contributors to a Roth individual retirement account is $144,000 in 2022. For married couples filing jointly, the upper limit is $214,000 in 2022. Similarly, there is a specific deductible amount that can be contributed each year. As of 2022, the contribution limit is $6,000 per year, which grows to $7,000 annually for people age 50 and older.

There are some exceptions to the upper income limit, however. You can create what is called a “backdoor Roth IRA,” where you transfer funds through a traditional IRA to your Roth individual retirement account before investing them for maximum growth potential.

Contributions to a Roth individual retirement account must be made in cash, rather than as securities or property. The money in your Roth individual retirement account can be invested in stocks, bonds, mutual funds, exchange-traded funds (ETFs), money market funds, cryptocurrencies and other investment opportunities. One special type of Roth individual retirement account, a self-directed Roth individual retirement account, allows you to manage your investments to hold assets that are typically excluded from retirement funds, like real estate investments, partnerships and precious metals.

Roth IRA Withdrawal Rules

Because a Roth individual retirement account is made up of post-tax dollars, you can withdraw any amount that you have contributed to the account without paying an extra penalty. However, this does not include the earnings or profits that you have acquired in the account from the investments made by the Roth individual retirement account. If you withdraw earnings, rather than your contributed principal, from the Roth individual retirement account, you may be taxed on the income or incur a 10% penalty, depending on your specific situation.

In general, experts advise avoiding withdrawals from a Roth individual retirement account unless it is necessary in order to maximize the growth of those funds. In fact, you do not need to withdraw from your Roth IRA even after you retire. Traditional IRAs have required minimum distributions (RMDs), which begin at age 72. However, a Roth individual retirement account does not force you to withdraw money when you reach a certain age, so your investments can continue to grow without incurring a tax burden.

There are different withdrawal rules, depending on your age. There are also some specific exceptions that you can take advantage of to withdraw early from your Roth individual retirement account for defined purposes.

For 59 and Younger

Again, you can withdraw the contributions that you make to your Roth individual retirement account at any time without paying penalties or taxes. The penalties and taxes come in if you withdraw earnings that have accrued from the investments in the account. However, there are some qualified distributions that, while not free of taxes, are free from additional penalties, even if you have had the account for less than five years. These include:

  • Withdrawals up to $10,000 maximum for first-time homebuyers
  • Withdrawals for qualified educational expenses
  • Withdrawals for birth or adoption expenses
  • Withdrawals on disability or death
  • Withdrawals for unreimbursed medical costs or health insurance premiums
  • Equal periodic distributions

If you have had the account for five years or more, there are two circumstances where you can withdraw proceeds without taxes or penalties: Amounts of up to $10,000 lifetime maximum for the first-time purchase of a home, or distributions in case of disability or death.

For 59 1/2 and Older

If you have already had your Roth individual retirement account for five years or more and you are 59 1/2 or older, you can withdraw all earnings as well as contributions from your account with no penalties or taxes. There are no required minimum distributions, unlike with a traditional IRA.

On the other hand, if you have not had the account for at least five years, regardless of your age, withdrawal of earnings (but not contributions) will be subject to taxation. However, no penalties will be applied to people over 59 1/2.

Roth IRA Withdrawal Penalties

Again, regardless of your age or how long you have had the account, you can always withdraw your own contributions to a Roth individual retirement account. The benefit of accounts like this is that they allow you to accrue investment earnings and withdraw them later, without taxation. Contributions to your Roth account are funded with after-tax dollars, not pre-tax dollars, so you have already paid taxes on the contributions. This means that taxing withdrawals of contributions would essentially be a form of double taxation.

So long as your withdrawals only reach the amount you deposited, regardless of your age, there is no taxation imposed. However, if you start to take funds from the earnings from your investments in the Roth retirement account and you are below the age of 59 1/2, that amount is considered taxable income. Unless it meets certain criteria for qualified distributions, it is also subject to the 10% early withdrawal penalty.

If you make a contribution to your Roth IRA and generate earnings on those funds in the same tax year, you can withdraw your proceeds as well as your contribution from the same year without an extra penalty, so long as the distribution is completed before your annual tax filings are due. However, you would still need to pay taxes on the earnings as investment income.

Pros & Cons

You may need funds for a wide array of reasons, leading you to make a withdrawal from your Roth individual retirement account. There are pros and cons to consider when deciding whether you want to withdraw, especially when accrued earnings are involved and you are below the age of 59 1/2.

Some of the pros of withdrawal are:

  • Your contributions, but not earnings, can always be withdrawn without taxes or penalties. If you need to access the money you deposited, you will not face a penalty for doing so.
  • There are qualified distributions that enable you to take an early distribution without taxes or penalties, so long as you meet the guidelines.
  • You can take comfort in the knowledge that you can access the funds in your IRA if you face an emergency or difficult times.

At the same time, there are some concerns to keep in mind before making an early withdrawal:

  • When you take an early distribution of earnings from a Roth individual retirement account, you may need to pay taxes as well as a 10% penalty on that withdrawal.
  • There are ways to take out funds from an IRA and return them within 60 days. However, if you do not meet those criteria, you can’t “pay back” Roth retirement accounts after the money was removed.
  • Withdrawing funds from Roth retirement accounts prevents you from achieving the goal of the account — that is, accruing income through the investment of the deposited funds and compounding those gains over the years.

What are Qualified Distributions?

There are several qualified distributions that allow you to withdraw earnings as well as contributions from Roth individual retirement accounts penalty free and tax free. Qualified distributions are those that take place at least five years after you initially opened the Roth retirement account and made an initial contribution. This five-year guideline is important to keep in mind if you are thinking about retirement planning because opening your Roth individual retirement account early on can help to protect you from extra fees later.

These qualified distributions apply to any of the following circumstances:

  • You are 59 1/2 or older at the time of the distribution, or
  • The withdrawal is because you are permanently disabled, or
  • Your beneficiary or estate withdraws after your death, or
  • The funds are being used to buy or build a home for a first-time homebuyer.

If none of these guidelines are met, your withdrawals of earnings (not initial contributions) are generally subject to your regular income tax rate as well as a 10% penalty. However, there are some withdrawals of earnings that you can take under the age of 59 1/2 that avoid the penalties, although they are not tax free.

These include the following:

  • Substantially equal distributions taken as a series, or
  • Unreimbursed medical expenses that are more than 10% of your adjusted gross income for the year
  • Premiums for health insurance if you are unemployed
  • Paying an IRS levy for unpaid taxes
  • Qualified distributions for military reservists and military leave of at least 180 days
  • Qualified expenses for higher education
  • Qualified expenses of up to $5,000 related to birth or adoption
  • Qualified disaster recovery expenses

In order to be considered a first-time homebuyer, you and your spouse may not have owned a home in the last two years. A withdrawal of up to $10,000 from your Roth account is considered a qualified distribution if it is used to build, buy or rebuild your home. You can use the money for your own home or your parent, child or grandchild, so long as the homeowner meets the criteria for a first time home purchase. Keep in mind that there is a lifetime limit of $10,000 for this early withdrawal exception. You must spend the funds within 120 days after the withdrawal.

Qualified expenses for higher education include costs for yourself and your spouse as well as your children, grandchildren or great-grandchildren. They can be used for expenses at a college, university, post-secondary vocational school or other qualified institution. These expenses include tuition and fees, room and board for at least half-time students, books, supplies and other requirements. A Roth individual retirement account is excluded from financial aid assessments, but the withdrawals do count as income and could have an effect on calculations, so make sure to consider this before choosing an early distribution for education expenses.

Borrow from Roth Loophole (60 Day Rollover)

A 401(k), a different type of retirement account, allows you to take a loan and repay the account over time. With a Roth individual retirement account, you cannot borrow like you can with a 401(k). However, you can essentially take a short-term “loan” from your IRA as long as you return the funds to the same account within 60 days after the withdrawal, also known as a rollover.

You can only do one Roth rollover each year, and there are multiple strict requirements for processing this 60-day rollover appropriately. If you are considering a rollover, discuss this with your financial institution to make sure that you will not face penalties for making the withdrawal, treating it as a non-qualified distribution.


With a Roth retirement account, you can always withdraw your contributions, but not your earnings on the invested contributions, tax free. Early distributions of the earnings before the age of 59 1/2 are generally subjected to a 10% withdrawal penalty as well as your regular income tax rate. Make sure to hold your Roth individual retirement account for at least five years before making withdrawals. There are some exceptions for qualified expenses, meaning that while your Roth account is not a substitute for an emergency fund, you can take comfort in knowing that it is there for you.

Of course, one of the primary benefits of a Roth account is the ability to invest long-term and accumulate income on your contributions, which can then later be used tax free, and early withdrawals interrupt this process. Consider your choices before opting for early distribution. If an early distribution is the right choice for you, a tax professional can help you to ensure all paperwork is filed properly and determine whether you meet the criteria for qualified distributions. Contact the tax professionals at Picnic Tax to learn more about the effects of Roth withdrawals on your tax return.