Roth IRA Early Withdrawal Penalties: What You Need to Know
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After-tax contributions can be withdrawn from a Roth any time without tax implications or withdrawal penalties.
Early withdrawal of earnings can lead to a 10% penalty and income taxes unless it’s a qualified distribution.
To withdraw earnings tax- and penalty-free, you must have held a Roth IRA for at least five years and be at least 59½.
It's one of the primary benefits of a Roth IRA: Unlike other retirement accounts, you can tap a Roth, up to the amount you’ve contributed, for any reason.
Different rules apply if you want to withdraw your earnings. In some cases, early withdrawals from your Roth IRA of investment earnings — rather than contributions — could result in paying a 10% tax penalty and income taxes on the money you take out, especially if you aren't 59 1/2 yet. You'll learn more about withdrawing both contributions and earnings below.
Do Roth IRAs have an early withdrawal penalty?
Yes, there may be a 10% penalty if you withdraw money early from your Roth IRA, but only if you're withdrawing from your earnings (the money that your money has earned in interest from being invested) and not your contributions (the money you actually put into the account).
The rules for taking out Roth IRA contributions are flexible, but that doesn't mean you should take advantage of them if you have other options. Pulling funds out early can derail your retirement plans and cause you to miss out on important investment earnings.
Early withdrawals of Roth IRA contributions
As noted above, Roth IRA contributions (meaning the money you put into the account) can be withdrawn at any time, for any reason, with no taxes or withdrawal penalties. That money shouldn't be a replacement for an emergency fund or an excuse to live above your means, but if things get dire, it can be a source of quick cash.
If you take a Roth IRA early withdrawal (before age 59½), contributions come out first, which is a rare move by the IRS to make things easier on you. You don’t have to worry about taxes — or about accounting for which portion of your distribution comes from earnings, and which from contributions — unless you pull out more than you’ve contributed.
Amounts converted into the Roth IRA come out next, on a first-in, first-out basis, and earnings come out last.
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Early withdrawals of Roth IRA earnings
Need to tap earnings (the investment returns on your contributions)? That’s where things get hairy.
You get to take qualified distributions tax-free. Trouble is, the IRS’s definition of a qualified distribution is narrow, and a distribution of earnings before age 59½ probably won’t meet it.
Early distributions of earnings for these reasons are considered qualified: not subject to taxes or the 10% penalty | Early distributions of earnings for these reasons are considered exceptions: taxable as income, but not subject to the 10% penalty |
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You've held a Roth IRA for at least five years AND you are taking the distribution in one of the following circumstances:
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First, to avoid both income taxes and the 10% early withdrawal penalty, you must have held a Roth IRA for at least five years. This condition is satisfied if five years have passed since you first made a contribution to any Roth IRA, not necessarily the one you plan to tap. (There is an exception, however: If you’ve converted assets from a traditional IRA or 401(k) into a Roth IRA, each converted amount has its own five-year clock. Here's more on the Roth five-year rules.)
Second, you must be age 59½ or older, permanently disabled, or using the money for a first-time home purchase (and for that last one, there’s a $10,000 lifetime limit). Beneficiaries are also able to take qualified distributions after the death of the account owner.
If you don’t meet both rules for qualified distributions, the IRS will waive the penalty (but not taxes) if you take a distribution for one of these reasons:
Qualified education expenses
Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income for the year
You withdraw up to $5,000 in the year after the birth or adoption of your child
Health insurance premiums while you are unemployed
Qualified reservist distributions (for members of the military reserve called to active duty)
A series of substantially equal periodic payments — recurring distributions designed to help you weather prolonged financial hardships before retirement age — which generally require that you take at least one distribution each year for five years or until you turn 59½, whichever comes later
Outside of those criteria, you may be taxed and penalized on an early withdrawal of earnings. Depending on your tax rate, that could eat a third to half of the taxable portion of your distribution.
In other words: With the exception of rare and dire circumstances, a Roth IRA early withdrawal isn't worth it.
For other ideas on finding cash to pay for unexpected costs, see our page on quick ways to borrow money.
Will your Roth IRA distribution be taxed?
Still not sure whether your Roth IRA early withdrawal will be taxed? The following quiz will give you quick answers.
