Articles on Stock markets

News, Research and Analysis

Help Center
Investment Portfolios
Investment Terminology and Instruments
Technical Analysis and Trading
Cryptocurrencies and Blockchain
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal Finance
Corporate Basics

What are the Tax Implications for Taking Money Out of a Roth IRA?

Distributions taken from a Roth during retirement are not subject any income taxes. Interestingly, the “cost basis” or contributions made to a Roth can be taken out at any time, including before age 59 ½, without tax or penalty.

Contributions are recorded on IRS form 5498 and a copy is mailed to you, but you need to keep up with your contributions if you might want to tap into your Roth early.

The earnings that accumulate must satisfy the 59 ½ requirement and the five year rule, or be used for first-time homebuyers expense, to avoid the 10% penalty and taxation. The five year rule says that the earnings in a Roth may be taxable if the Roth account is under 5 years old.

Some will say that it is supposed to be 5 since the contribution that certain funds are attributable to, but this is only applied to conversions deposited as a lump sum. For all other regular contributions, the first contribution ever made to the Roth serves as the starting point for the 5 Year clock.

Just to be clear, early withdrawals that are from the earnings of the account will be subject to taxation as income and 10% early withdrawal penalty.

As for other possible tax implications: some retirement income, such as RMDs from Traditional IRAs and 401(k)s, can push a person’s MAGI (modified adjusted gross income) over the limits which trigger the 3.8% Medicare surtax, but Roth distributions do not, and this goes for Roth 401(k)s as well.

If done correctly, there will be no tax implications for Roth withdrawals.

Keywords: taxation, retirement accounts, age 59 ½, early withdrawal penalty, 59 ½ rule, 5-year rule, qualified withdrawals,
How Do I Invest Money in My Cash-Balance Plan?Will My Spouse and Children Receive Social Security Benefits if I Die?How are Social Security Benefits Computed?What is an Illiquid Security?What is Freddie Mac?How large are market fluctuations?What is the Federal Energy Regulatory Commission?Is there any merit to the momentum theories?