A Roth IRA can provide tax-free income in retirement when you follow IRS rules. But sometimes you need to take early withdrawals, and a Roth can be a flexible account. Even if you’re at retirement age, the tax rules can be complicated, so we’ll review how things work in this video.
Whether or not you get a tax-free withdrawal from your Roth depends on several factors. The type of money you take, how long you’ve had your account, and your age are all important.
You can typically take back your regular contributions at any time with no taxes and penalties. Those are your standard annual Roth IRA contributions of several thousand dollars per year. Then, you may have earnings in your account (you could also have losses, which change things), and it’s possible that you’ll owe income tax and penalties on the earnings portion of your withdrawal.
Roth conversions are not regular contributions, and they’re treated separately. It’s possible to owe the IRS money when you withdraw conversions, especially if you’re under age 59.5. Plus, each conversion has its own 5-year rule, which might delay the availability of tax-free access.
And what about your Roth 401(k) or Roth 403(b) accounts? Most people roll those funds over to a Roth IRA, but that’s not always the right move. Evaluate the pros and cons, and if you decide that a Roth IRA is the right place for that money, consider opening and funding a Roth (if you don’t already have one) to start the 5-year clock for that account.
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A few resources to help you research this topic. It’s critical that you triple-check everything.
Basics of Roth IRA distributions:
Interactive tool to help you determine if a distribution is taxable:
Explainer on Roth IRA withdrawals:
Roth 403(b), 401(k), and 457 (also known as Designated Roth Accounts):
Timestamps:
00:00 Get Familiar With Roth Withdrawals
00:30 Pay Taxes Now or Later?
01:04 3 Factors That Affect Taxes
01:59 Tax-Free Return of Roth Contributions
03:16 Roth 401(k) and Roth 403(b) Can Be Rolled to Roth IRA
04:24 The Easiest Way to Get Tax-Free Withdrawals From Roth IRA
04:49 Age 59.5 and the 5-Year Rule
06:34 Roth Conversion Withdrawals
07:35 Will Roth IRA Ever Be Taxed?
09:17 Key Benefits of Roth Accounts (Social Security Taxation, Healthcare, etc.)
Justin Pritchard, CFP® is a fee-only fiduciary advisor who can work with clients in Colorado and most other states.
IMPORTANT:
It’s impossible to cover every detail and topic in a video like this. The only thing that’s certain is that you need more information than this. Always consult with a CPA before making decisions or filing a tax return. This is general information and entertainment, and is not created with any knowledge of your circumstances. As a result, you need to speak with your own tax, legal, and financial professional who is familiar with your details. Please verify with your plan administrator when employer plans are involved. This information may have errors or omissions, may be outdated, or may not be applicable to your situation. Investments are not bank guaranteed and may lose money. Opinions expressed are as of the date of the recording and are subject to change. The Comments section contains opinions that are not the opinions of Approach Financial, Inc., and you should view all comments with skepticism. Approach Financial, Inc. is registered as an investment adviser in the state of Colorado and is licensed to do business in any state where registered or otherwise exempt from registration….(read more)
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so if i wanted to get my contributions back for whatever reason i would just sell off $,6000 worth of stock/etf from my investments and it will not be taxed?
What is the rules for withdrawing while disabled
To pull money out, don't you have to sell your shares?
Very informative things to think about.
Im looking to access one of my IRA's. I have three, one is a rollover IRA , the other two are ROTH IRA's. Curious if you have any guidance regarding this scenario? Appreciate your advice in advance.
If you're under 59 1/2, can you withdraw your initial contribution tax free since Roth contributions are taxed beforehand?
If I took closed 1 of my 4 Roth IRA accounts in 2020 ( liquidated with a
check ) took 8200.00 it was a ROTH account. I'm only 55yrs old. The
IRS wrote me. I did not claim on my taxes last year. They want to tax me
and 10%. i have in all 4 Roth accounts. (now i have 3 Roth account
left) i funded with contributions for past 25yrs (off and on) a total of
85000.00 in only contributions funds only. My contributions are divided
up in 3 accounts with 3 banks ( USAA, Schwab and Vanguard) All my money
is in Money market accounts. I have made in gains only about 1% total
or 8500.00 (I lost in 2009 in stocks. I never went back into market)
Does the IRS look at all of my Contributions 85k worth as 1 piggy-bank?
Or does it look at each account separate? The check 8200.00 i took was
just a portion of all my piggy bank of 85000.00 in life time
contributions? Form IRS 8606 says that you can take out contributions
anytime and that's what i did. Its says "show your total contributions"
since Roth Started 20yrs ago, I did this. It's about 85k and about 6k
was gains.The account i close had a gain of 200.00. I just hope that i
can tell IRS that i am just taking my "rightful" small portion of my
historic 85k piggy bank of my contributions. Or do they look at each
account separate and will tax and 10% against the very small 200.00
gains that came from the TD amertrade account i closed. I just want to
report i took "some" of my total 85k historic contributions from my
Total sum from the past 25yrs and be done! Thank YOU!
Can Roth IRA distributions be added to a persons gross income causing a reduction of income tax refund??
I have seen so many videos and I get confused even more, I wanna
start my retirement plan and I clearly do not know how to
go about it. I heard of Roth IRA but I need to know
more. Any good advice/ideas will be great.
New Sub! Question! I am 37 and the account is 10 years old. I would like to pull from my Roth IRA some of those gains to open a business. What can i expect? Will i be allowed?
Very informative video. I do have a question I have a solo 401(k) with self-directed checking one for Roth funds and one for traditional funds. The contributions are almost always invested in brokerages like M1 finance and Gemini (Roth funds). What is considered a withdrawal, is it when you pull the money out of the brokerages back to the checking account or is it when you pull money out of the checking account to your pocket? I would appreciate a response
can you also withdraw contributions from your Roth 401k without any taxes and penalties at any time?
Great video! I have not been utilizing my Roth to its full potential but that changes today! Just to clarify, if I invested $500 in 2019, $250 in 2020, $2,500 in 2021, will be adding $3,500 to hit $6,000 limit this upcoming week. Is it correct after I make that last contribution (if I needed it) I could pull out any amount under $6,750 with no taxes or penalties? Or can you only withdraw the contribution for that tax year? Thank you.
Do I have to pay federal taxes on inherited Roth IRA …so can I opt out…and yes it’s more than 5 years old