Savers fund Roth IRAs with after-tax contributions, and the earnings on those contributions grow tax-free. To withdraw those earnings without paying taxes and a 10% penalty, the account must be open for at least five years, and the holder must be at least 59½. But there's a workaround.
The key word is earnings. The timeframe, taxes, and penalties apply only to earnings.
You can withdraw your contributions at any time, without penalty, regardless of your age or when you established the account, because taxes were already paid on that money.
For example, if someone owns a $100,000 Roth that consists of $75,000 in contributions and $25,000 in earnings, the investor can pull out that $75,000 with no penalties.
Because withdrawn Roth contributions can be used for anything, it is one of the most flexible retirement accounts
There are also three qualified reasons why someone who has owned their Roth IRA for five years, but is under the age of 59½, can take distributions on both contributions and earnings without triggering penalties or paying taxes:
- Buying, building, or rebuilding a first home, with a $10,000 lifetime maximum withdrawal.
- The account owner becomes permanently disabled.
- A beneficiary or the person's estate makes a withdrawal after the account owner's death.