How do Roth IRA withdrawals work?

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Q:  When some­one pulls money out of their Roth IRA for emer­gency pur­poses the money is pulled out tax free if not accept­ing the earn­ings, cor­rect? When the money is pulled out does it count as added income for tax pur­poses for the year?

–Jermyn, U.S. Army


A: Yes and no. One of the attrac­tive aspects of a Roth IRA is it pro­vides more flex­i­bil­ity than a lot of other tax advan­taged retire­ment sav­ings vehi­cles.  While con­tri­bu­tions are not deductible, you are able to access them at any­time with­out taxes or penal­ties.  And when you make a with­drawal from your Roth, the first money that comes out is your contributions.

For exam­ple, let’s say you opened up a Roth IRA and con­tributed $4,000 a year for 5 years.  In year 6, the Roth IRA account is val­ued at $26,000 when it becomes appar­ent you are going to need money for your kids’ col­lege.   At that point, you would be able to with­drawal $20,000 with no taxes or penal­ties.  How­ever, any with­drawals above the $20,000 would be sub­ject to taxes and applic­a­ble penalties.

In order to take advan­tage of the tax free with­drawals of both what you con­tributed and the earn­ings you have to have had the Roth IRA account for at least 5 years and have attained age 59 ½.  So, the Roth IRA is a great way to save for retire­ment, but does offer some flexibility…if life happens.

Good luck!


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Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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