With retirement on the horizon, you might have questions about how you can most effectively utilize your Roth IRA. Roth IRA’s are an Individual Retirement Account named after its creator, the late Senator William Roth of Delaware. Roth IRA’s allow you to save and invest money that you can then use in your retirement years. Roth IRA’s are an alternative to traditional IRA’s with different rules applying to the taxation of contributions and withdrawals. This article will help to explain some of the rules you’ll need to follow in order to most effectively withdraw the savings from your Roth IRA.
While withdrawals from Roth IRA’s can be a little complicated, they are not impossible to understand with a little effort. Many investors try to withdrawal just the earnings in their account to avoid taxes, leaving the original contributions untouched until absolutely necessary. To do this, there are important rules to follow to withdraw earnings from your Roth IRA and avoid either penalties, taxes, or both. If your circumstances match any one of these situations you should be able to avoid taxes and penalties.
Common Roth IRA withdrawal rules to follow:
1) You must be at least 59 ½;
2) Withdrawals can be made to the Roth IRA owner’s beneficiary or estate if the owner has died
3) In the event of a verified disability withdrawals may be by the Roth IRA owner;
4) Withdrawals can be used to pay for a qualified first time home-buyers expense of up to $10,000;
5) Withdrawals can be made in a series of “substantially equal periodic payments” spread out over the life expectancy of the owner;
6) Withdrawals are used to pay unreimbursed medical expenses that are greater than 7.5% of the account owners adjusted gross income;
7) In the event of unemployment lasting longer than 12 weeks, withdrawals may be used to pay for medical insurance premiums;
Withdrawals can be used to pay for higher education expenses for either the owner or eligible dependants;
9) If the account owners has a levy placed on them by the IRS, withdrawals can be used to make the tax payments.
Of course Roth IRA withdrawal rules can be different depending on whether the account was the result of a 401k rollover, or if it was inherited from the previous owner. As always check with your tax and investment professional before making any decisions regarding your retirement accounts.