Posted on | January 20, 2011 | 4 Comments
There are numerous retirement accounts available, but one of the most popular is Roth IRA. This is not surprising as there are a lot of advantages of Roth IRA compared to its counterparts. But to fully avail of its benefits, it’s great to know about Roth IRA withdrawal rules, too. This is the ultimate way to avoid unexpected taxes and penalties that could arise if you happen to withdraw funds that are not yet qualified distribution.
One of the least known Roth IRA withdrawal rules is that you can withdraw your principal contribution without any taxes or penalties. This is perhaps the most important withdrawal rule there is, but most people are unaware of it. Undeniably, this is what makes Roth a very flexible investment vehicle. It could mean that you can use this amount if you need it for any emergency or any other important stuff. The Roth IRA penalty only applies to the earnings that had accumulated for the number of years that you invested your funds. The ‘qualified distribution’ rule plays an important function in this. Remember that you can withdraw the funds if it has been five years already after you had opened your account. Well, of course, you can still withdraw funds way before it becomes a qualified distribution but you will be required to pay for the penalty and taxes, too. Another rule is that you should be at least 59.5 years old before you can withdraw the earnings without incurring some taxes and penalties. It simply coincides to the fact that Roth IRA is a retirement account. With this rule, it will be more likely that people will withdraw the funds when they’re already retired or nearly so. But these rules have exemptions though, so it’s still flexible enough to accommodate the needs of each investor.
- What is a Roth IRA and how can it Benefit You? (2009tax.org)
- Knowing the Roth IRA Tax Rules (2011tax.org)