Withdrawing Roth IRA Contributions

• You can withdraw the entire amount of your Roth IRA contributions at any time without owing income taxes or penalties to the Internal Revenue Service. Because you already paid income taxes on these contributions, the IRS has no authority to penalize you if you remove them before you turn 59 1/2. To find out how much you can withdrawal tax and penalty free, add up contributions you made to all of your Roth IRA accounts.
  
  

Ordering Rules for Roth IRA Assets

• If you take a Roth IRA distribution that exceeds your contributions before you turn 59 1/2, IRS rules dictate the order in which you must withdraw your assets so it can tax you accordingly. After contributions, you can dip into amounts you converted from a pre-tax account, like a traditional IRA or a 401k. After those funds are exhausted you must take from nontaxable amounts you rolled into your account, perhaps from another Roth IRA. Finally, you can withdraw money your contributions earned.
  
  

Five-Year Rule

• To take a qualified withdrawal from your Roth IRA, one that exceeds the amount of your contributions but is tax and penalty free, your account must have been open for at least five years. The clock starts ticking on Jan. 1 of the year to which you applied your first Roth IRA contribution. If your account meets this qualification, you can take unlimited qualified distributions beginning the year you turn 59 1/2, or if you become disabled. You can also take up to $10,000 to pay for or build your first home.
  
  

Tax-Free Distributions

• If you exhaust your contributions, you can withdrawal the next type of Roth IRA asset, taxable rollovers converted from pre-tax accounts, if applicable. If you made the conversion less than five years before the time of your withdraw, you owe the IRS a 10 percent early withdrawal penalty on the amount. However, you do not owe income taxes.
  
  

Penalty-Free Distributions

• There are several scenarios in which the IRS allows you to avoid its 10 percent penalty on early distributions that exceed your total Roth IRA contributions, but requires you to pay income taxes on your account's earnings. If your account has not yet been open five years but distributions are taken from your account because you die or become disabled, you or your heirs do not owe the 10 percent penalty. The rule also applies to amounts you withdraw to cover qualifying education expenses and medical bills that exceed 7.5 percent of your income.