You can withdraw contributions any time, but investment earnings are typically not available without penalty until you turn 59 ½. Still, there are a few ways to access those earnings, and we’ll discuss them in detail here.
Only 401(k) Plans Offer Loans
You can’t borrow from a Roth IRA. The only qualified retirement plans that offer loans to investors are employer-sponsored plans such as 401(k)s. Of course, with this loan, you’re technically borrowing from yourself, but you are accessing the money in the account without penalty. Depending on the specific rules of the plan with your employer, you can borrow as much as $50,000 or half of the account over a 12-month period. You typically have to pay the loan and interest back within five years, unless the funds are used to buy your main home.
Roth IRA Contributions Can Be Withdrawn Anytime
Even though you can’t take a loan from a Roth IRA, the funds are accessible. In fact, the ability to withdraw contributions from Roths without penalty makes Roths among the most flexible of the qualified retirement plans. You don’t need to pay taxes on your withdrawals because the money has already been taxed as income before you contributed. You can use the money for withdrawals for whatever you need, from buying real estate to starting a business. If you’re currently maxing out a 401(k) but want to save more for retirement, consider adding a Roth in case you need the contributions in the future.
Qualified Early Withdrawals From Roth IRAs
While you can withdraw your Roth IRA contributions at any time, you typically must wait until you are older than age 59½ and have had the account for five years before withdrawing any tax-free earnings on your investments. However, you can withdraw investment earnings from a Roth early under the following circumstances:
You are disabled. You’re using up to $10,000 to purchase your first home. You are the beneficiary of a deceased IRA owner. You have medical expenses totaling more than 7.5% of your adjusted gross income (AGI.) You’re paying medical insurance premiums while unemployed. You’re paying an IRS tax levy.
Tax Penalties for Unqualified Roth IRA Distributions
If you distribute investment earnings from your Roth for any reason other than what is described above, you’ll be liable for a 10% tax penalty.
How To Withdraw From Roth IRAs
Withdrawing from a Roth IRA is straightforward, typically as simple as transferring the money out of the account into a checking account. You’ll need to file an IRS Form 8606 for the tax year that you make the withdrawal, to declare how much has been withdrawn and if it was from your contributions or from investment earnings. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
