Please elaborate the 5 yr hold or w/e when getting a Roth IRA

[dgcoupe]

I was reading a book but didn't understand the 5 yr something that they say when opening a Roth IRA.. dealt with withdrawing before the 5 yr n after 5 yr .. I got lost. hope i gave enough details

in conclusion it says make sure to wait 5 yr before u try to withdraw any of ur Roth IRA.

[dczech09]

After you've had the account in force for 5 years, you can withdraw money from the account without a penalty as long as the withdraw is for a qualified reason. The qualified reasons are as follows:
- You're at least 59 1/2 years old and are looking for retirement income
- You're a first time home buyer ($10,000 max withdraw)
- Other reasons may be if you were dependent on someone who has passed, you have become permanently disabled, or you actually literally need the money and can prove it.

If you do not meet one of these qualifications, withdraws are subject to taxes and a 10% penalty. It is almost never a good idea to withdraw prior to retirement. Any pre-retirement withdrawls should be a last resort; if you think you need the money to avoid bankruptcy, it should be noted that TSAs (such as an IRA) are generally not required to liquidate in a bankruptcy. Please realize that these rules are subject to change and you should consult a professional prior to making any decision to withdraw.

[dgcoupe]

i thought it was ok to withdraw as long as it is 1) roth and already taxed 2) your contribution and not ur earnings. I could have sworn many examples were given as in jack put in 8k and now has 10k and decide to take out 6k and it was not taxed nor avoided penalty cuz it was a roth ira and after the 5yr thing.

[jIM_Ohio]

dg- you have both issues right, you need to seperate them to clear this up

There are qualified distributions-
over age 59.5 and money has been in account for 5 years

The best example here is if you CREATE the Roth at age 57 and contribute $5000 at age 57, then at age 58 you earn 10% interest (so account is now worth $5500) you cannot withdraw the $500 because you did not meet the 5 year test for earnings. The earnings in this case could be taken out (penalty free/tax free) at age 62 (57+5 years).

There are other qualified distributions
like money which was contributed can always be withdrawn penalty free

In same example above, if you contributed $5000 at age 57, and it earned 10% interest, so at age 58 you have $5500, you can ALWAYS withdraw the $5000 you contributed, the $500 interest needs to stay in account 5 years to meet the first example (5 year rule).

A few finer points-

The 5 year rule is best avoided by doing one of the following two things

1) contribute to Roth when you are young
2) avoiding doing Roth rollovers or Roth conversions within 5 years of needing the money.

And remember, Roth distributions are the following:

FIFO (first in, first out)
Contributions first, then earnings

This means if you contribute from age 30 to age 59.5 (30 years) and contribute $5000 each year ($150,000 total), and take out $40,000 per year, in year 4 you will have taken out all your contributions (3 times 40k=120k, then 4th year is 30k of contributions plus 10k of earnings, the 5th year's distribution will be all earnings- but because account existed for 30 years, it meets the 5 year rule).

If people are doing Roth conversions when in retirement, this needs to enter into the planning... it is generally suggested that Roth accounts be the LAST account you draw down, because money is tax free.

[Thrif-t]

What I've always understood with a roth is that I can withdrawn my contributions after they have been in there 5 yrs even if i'm under 59 1/2 but not the earnings or I pay taxes and penalties. Is that not right?

[maat55]

What I've always understood with a roth is that I can withdrawn my contributions after they have been in there 5 yrs even if i'm under 59 1/2 but not the earnings or I pay taxes and penalties. Is that not right?

You can withdraw contributions at anytime(under 5 years as well). You just cannot replace them.

You have to wait 5 years on the earnings to avoid the penalty and taxes(under qualitifed withdrawals).

[jpg7n16]

You can withdraw contributions at anytime(under 5 years as well). You just cannot replace them.

You have to wait 5 years on the earnings to avoid the penalty and taxes(under qualitifed withdrawals).

Exactly.

The 5 year rule applies to earnings only.