When Can You Take Money out of a Roth IRA?

So you have a Roth IRA and you want to take money out. There is one hard and fast rule, but otherwise, you can take money out, though you may face certain penalties.[1] If you’re in a rush, and you’ve had your account for less than five years, you’re out of luck. Read on for more insight into what Roth IRAs are, how they work and when the rules surrounding when you can make a withdrawal from your Roth IRA.

First things first, it’s important to understand what a Roth IRA is and how this retirement savings vessel works.

A Roth IRA is a type of retirement account that you make to which you contribute after-tax dollars. Your contributions and earnings grow tax-free, and you can withdraw them tax- and penalty-free after age 59½, as long as the account has been open for five years.

Some advantages of Roth IRAs include:

• The ability to contribute at any age with qualifying income.

• No mandatory withdrawals, meaning your savings grows even during retirement.

• There are no income taxes for inherited Roth IRAs.

Roth IRAs are available at credit unions, banks, brokerages and other financial institutions.

With Roth IRAs you don’t have to pull out the funds by a certain age. You can keep them invested in your Roth IRA as long as you live.[2]

When you do withdraw, you’ll want to do so with care. If you want to avoid paying taxes on earnings and early withdrawal penalties you need to make a qualified distribution (you get to take money out tax- and penalty-free).

Qualified distributions happen after the age of 59½ and after a five-year holding period. In other words, you can’t make a withdrawal until five years after first contributing to a Roth IRA account without risking paying a 10% penalty.

All of that being said, there are some exceptions to 59½ rule which we’ll break down below. There are no exceptions to the five-year holding period.[3]

You can only contribute to a Roth IRA if you make a certain amount of money. Additionally, contributions are limited.

If your income makes you eligible to contribute (see the chart below for 2022 income limits based on your filing status), you can contribute up to $6,000 a year if you are under the age of 50 or $7,000 a year if you are aged 50 or over.[4]

IRA contribution limits, whether traditional or Roth, were written into law to keep higher income earners from benefiting more from the tax advantages than the average person can, according to Kevin Chancellor, chief executive officer of Black Lab Financial Services, a wealth management firm.[5]

As previously noted, there are some exceptions to the 59 ½ rule (don’t forget: the five year rule still needs to be met to avoid penalties). You may withdraw funds for:

• Buy your first home (up to a $10,000 lifetime maximum)

• Qualified education expenses

• Qualified expenses related to a birth or adoption

• Disability or death (your beneficiaries can withdraw the funds)

• Paying for unreimbursed medical expenses or health insurance if you're unemployed

• Making distributions in substantially equal periodic payments

“It can definitely make sense to use Roth IRA dollars for a first-time home purchase or college expenses,” Chancellor says. “These exceptions to the rule can avoid both penalties and taxes under certain circumstances.”

Even though you can withdraw funds early under certain circumstances, ideally do not touch your Roth IRA contributions or earnings until you’re ready to retire or well into retirement.

“Withdrawing funds from a Roth IRA will be different from person to person depending on their plan and financial situation,” Chancellor says.

“If at all possible, I try to let Roth IRAs grow as long as they can before a person needs the funds," he says. "However, blending tax-free withdrawals from a Roth IRA, along with non-qualified taxable funds, and tax-deferred dollars can be a good way to spread lower overall income tax while a person is retired making their nest egg last longer.”