Withdrawal Penalties

It is possible to withdraw your Roth IRA contributions at any time, once you have held the account for the five-year minimum, without penalty because you have already paid taxes on these funds. If you withdraw the earnings before age 59½ and/or you have not held the Roth IRA for at least five years, you will face a 10 percent tax penalty. The five-year rule is one to keep in mind as you get close to the 59½ benchmark. If you were to open a new Roth IRA at age fifty-six and then decided you needed access to the funds at age sixty you might be caught in a squeeze of the rules. You are past the age limit of 59½ but you are not “vested” in the account for the five-year minimum.


However, as with all rules, there are exceptions. The list that follows applies to both Roth IRAs and traditional IRAs. It shows situations in which a penalty would not apply for early withdrawal. (Note that taxes will be triggered for regular IRA withdrawals.)

  • Buying your first home ($10,000 cap)

  • Post-secondary education costs

  • Medical expenses that run over 7.5 percent of your adjusted gross income

  • Health insurance premiums, after 12 weeks of receiving unemployment compensation

  • An IRS levy on the IRA

  • Regular periodic distribution payments taken under IRS guidelines

  • Disability

  • Death

You can have multiple Roth accounts, so it may make sense to stagger opening them throughout the course of your work years to protect yourself from triggering penalties around the magic 59½-year mark.

How Money Withdrawn Is Categorized

The IRS has established a sequencing of withdrawals for investors. Roth accounts can be made up of monies put in each year, known as “contributions”; interest or dividends, known as “earnings”; and monies that may have come from other traditional IRAs converted to Roth IRAs, known as “conversions.” The withdrawals are considered to come in this order:

  • Contributions

  • Conversions

  • Earnings

This may be significant if you need to make withdrawals before age 59½. Let's say that over a ten-year period, from age thirty to forty, you have accumulated $65,000 in your Roth IRA, which can be broken down to its sources as:

Roth Account — Total $65,000



Age 30


Age 31


Age 32


Age 33


Age 34


Age 35


Age 36


Age 37


Age 38


Age 39


Conversions at age 34




For example, if at age forty you needed to get your hands on some capital to start a small business you could withdraw $17,000, which had been invested for five or more years, with no penalty. Even though the conversion funds have also been in the account for over five years they would not be considered distributed until all of the contributions had been. So, if you wanted to withdraw, for instance, $35,000 in total, you would be looking at a 10 percent early withdrawal penalty on $13,000, or $1,300. This is calculated by subtracting from $30,000 (the total dollars contributed) the $13,000 that had not been held for five or more years. The next $5,000 you would be withdrawing would not be subject to the penalty because it would be counted as coming from the conversion event, which was more than five years earlier. None of these monies would be subject to any further income taxes because they had already been filtered through the income tax process to get into the Roth in the first place.

Of course it is hoped you would only dip into these funds this far in advance of retirement for a very important reason. If, for example, that $35,000 is withdrawn and no longer available to work for you, it can be very difficult to catch up in building a nest egg for your later years.

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