Another Roth Ira Question

[Goldy1]

Ok I get the "jist" of roth ira's but I have a question I need answered.

Ok I thought if I put money into a roth ira that I can take it out without any penalty(contribution can be taken out, not earnings however).

Ok so I saw something about a 5 year rule. It said the account has to be in existance for 5 years before I can take it out penalty free.
So if I opened a roth last night, put money in it, and one year from now need or want it out, I can' t unless I am penalized?
And I am not sure if the account has to be 5 years old or if any particular money I invest must be in there 5 years.

so confusing geez. I called ING and they were not sure, so I might just call and ask fidelity tonight. lol

I don' tneed the money now but was going to max out if I could get at the money anytime even tho I doubt I will need to take out before I retire, but you never know.

[maat55]

You have a five year waiting period for withdrawing on earnings on a roth. Beit quailified withdrawels after age 59.5 or those qualified before age 59.5.

There are qualified withdrawals before and after 59.5 on earnings, but they all are subject to the five year rule.

[jIM_Ohio]

earnings cannot be withdrawn until age 59.5 and 5 year rule have been met.

[Goldy1]

ok thanks. fidelty told me what mat and jim said too, and said they were positive I could take out contributions.

I called ING, got a woman who was clueless She says "um ahhh anytime you take out of a retirement account before 59 1/2 you get penalized"
So I explained the roth ira rules to HER, and she said "hold on let me check for you.." So I got another guy who misinformed me as mentioned above.

I am taking their "advice" with a grain of salt. Fidelity has been so great and knowledgable helping with anything over the years.

thanks guys.

It was just funny that I knew more about roths than a "roth ira specialist" LOL...guess the gurus ar on vacation this week lol

[aurielle]

You have a five year waiting period for withdrawing on earnings on a roth. Beit quailified withdrawels after age 59.5 or those qualified before age 59.5.

There are qualified withdrawals before and after 59.5 on earnings, but they all are subject to the five year rule.

So if for instance I fully fund my Roth for the year at age 59, I cannot withdraw those earnings for that tax year until age 64?

[jIM_Ohio]

So if for instance I fully fund my Roth for the year at age 59, I cannot withdraw those earnings for that tax year until age 64?

CORRECT.

Money comes out of a Roth in this order

1) contributions
2) rollover contributions/ conversion contributions
3) earnings

earnings are the only thing subject to the five year rule. If you have enough contributions and conversions, the earnings on the age 59 deposit won't be withdrawn for a significant amount of time.

[aurielle]

Thanks Jim. I had asked this same question before, along with another Roth question but it was never really answered. I thought that anything goes after age 59.5 with a Roth but evidently not.

[jIM_Ohio]

The magic age is really 64.
Age 67 is retirement for most of us- so 64 or 59.5 is early retirement and anyone using these provisions would probably have been saving for quite some time.

[maat55]

earnings cannot be withdrawn until age 59.5 and 5 year rule have been met.

Jim, let me know if I am misinterpreting this:


Direct contributions to a Roth IRA may be withdrawn tax free at any time. Rollover, converted (before age 59½) contributions held in a Roth IRA may be withdrawn tax and penalty free after the "seasoning" period (currently 5 years). Earnings may be withdrawn tax and penalty free after the seasoning period and age 59½ (or other qualifying event). Dividend and interest earnings within a traditional IRA are taxed as Ordinary Income even if the monies were invested in stocks or mutual funds, and a penalty applies for withdrawals before age 59½. In contrast, stocks or mutual funds held in a regular taxable account for at least a year would be taxed at the lower long-term capital gain rate, currently only 15%. This higher tax rate for withdrawals from a traditional IRA is a quid pro quo for the deduction taken against ordinary income when putting money into the IRA.
If there is money in the Roth IRA due to conversion from a traditional IRA, the Roth IRA owner may withdraw up to the total of the converted amount without penalty, as long as the "seasoning" period (currently five years) has passed on the converted funds.
Direct contributions to a Roth IRA (i.e., not including rollovers) may be withdrawn at any time with no tax or penalty, since they have already been taxed.
Up to $10,000 in earnings withdrawals are considered qualified (tax-free) if the money is used to acquire a principal residence. This house must be acquired by the Roth IRA owner, their spouse, or their lineal ancestors and descendants. The owner or qualified relative who receives such a distribution must not have owned a home in the previous 24 months.

They list others such as: certain medical expenses, disability etc.

[jIM_Ohio]

maat- you got it.

jIM