When can I withdraw from Roth IRA ?

Submitted by bepis49 t3_127row8 in personalfinance

Hello,

I opened my Roth IRA in Jan 2018 and it has built up to be about 9k in market investments and 6k in cash. I was wondering if I am allowed to withdraw some of the cash portion of my account. I know it is not advised to, but I need about $1,000 extra this month. But, I am unsure if I can even touch this account until I am 60 years old. I was hoping someone could clear this up for me.

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BogBabe t1_jefh38z wrote

You can withdraw your contributions at any time without penalty.

If, for example, your contributions to your Roth IRA totaled $5k and its value has grown to $9k, you can withdraw up to $5k whenever you want.

You can't put it back in again later — you're still limited to the annual contribution amount allowed. But you can take it out anytime.

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sciguyCO t1_jeftwzw wrote

>You can't put it back in again later — you're still limited to the annual contribution amount allowed.

While generally true, there is a small loophole. If the money is returned to the IRA within 60 days, it can be treated as an "indirect rollover", negating the withdrawal and not counting as part of this year's contribution limit. As I understand things, it doesn't even have to involve separate IRAs, you can "rollover" out of an IRA back into the same one as long as the rest of the rules are followed. The IRS does limit an individual to only one indirect rollover every 12 months, so this isn't something that can done on a regular basis.

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BogBabe t1_jeg5kpb wrote

Yes, that's true, i forgot about that. You can "put it back" within that very short time-frame, once per year, and only if the Roth IRA in question hasn't previously been involved in a rollover in the past 12 months.

If we're getting into the details of this, OP could also make a qualified withdrawal if he becomes disabled, if he's buying his first home, or if he dies and his beneficiary wants to make a withdrawal.

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Werewolfdad t1_jefggol wrote

You can withdraw your contributions at any time, tax and penalty free

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sciguyCO t1_jefiz0y wrote

You are allowed to withdraw however much you want from your Roth IRA at any time at any age. That is your money and you cannot be prevented from accessing it.

The big catch (which is probably your actual question) is that there are rules about whether that withdrawn money will be taxed or penalized. That tax + penalty is usually high enough that it's almost always a bad idea to incur those unless you absolutely, positively have to have more money right now or face severe consequences.

Roth IRA withdrawals follow a defined order depending on the category those dollars fall into. Here's a decently readable chart.

  • "Contributory dollars" is the total of money you have put into your Roth IRA(s) since your very first deposit, minus any past withdrawals from your Roth IRA. So if you've made $5k of contributions since 2018 and haven't taken anything out since, that's the amount in this category and is the first thing used up from your current balance.
  • The "conversion dollars" only matter when you've moved money from a non-Roth retirement account into your Roth IRA. That's probably not relevant to your situation, so I'll skip those.
  • "Earnings" is everything else.

Withdrawals are always done as cash, so if you didn't have any in your IRA you'd have to sell some of your investments. That specific step is invisible to the IRS as far as taxes, they only look at money going into / out of the IRA as a whole.

So as long as you've contributed more than $1000 into your Roth IRA in the past 5 years, you can withdraw that much from your IRA without owing the IRS anything. That does effectively "waste" some of your past annual contribution limit and you lose out on future growth, but the government won't want anything from you for making that withdrawal.

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bros402 t1_jegakfo wrote

First off, never leave anything in cash in your Roth IRA.

Second, you can withdraw any contributions you have made.

You cannot put that money back in unless you put it back within 60 days.

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