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Roth IRA Distribution Rules

What are the Roth IRA distribution rules?

It's important to know, because improper distributions from a Roth IRA can trigger income taxes as well as a 10% early withdrawal penalty.

So take the time to learn the difference between a qualified distribution and a non-qualified distribution. It just might save you a few dollars and a lot of headaches.

Also, by knowing the distribution rules, you place yourself in the perfect position to take advantage of some of the early withdrawal exceptions allowed by the IRS. If any of the special situations apply to you, then knowing how to take advantage of them could save you thousands of dollars!

Qualified Distributions

Qualified Roth IRA distributions are withdrawals from your account which are tax-free and penalty-free.

Generally speaking, you must be at least 59 ½ years old with a Roth IRA account that meets the 5 year rule for any withdrawals to be classified as qualified distributions. Of course, like much of life, there are exceptions, and we'll cover those later. But, for the most part, your age and the age of your account are the primary factors for a qualified distribution.

For example, let's say you opened a Roth IRA at age 52 in 2002. In 2010, you decide to withdraw $2,000 in investment earnings from your account. In such a scenario, can you withdraw those earnings tax-free and penalty-free?

Yes. You can.

Why? Because the account is 8 years old, thus meeting the 5 year rule requirement, and you're now 60 years old, which is older than the 59 ½ year old minimum limit.

Non-Qualified Distributions

Non-qualified Roth IRA distributions are withdrawals which are NOT tax-free and penalty-free.

As a general rule, if you withdraw earnings from your Roth IRA prior to age 59 ½ or before your account has been opened for five tax years, your withdrawal is classified as a non-qualified distribution.

For example, let's say you opened a Roth IRA at age 58 in 2008. In 2010, you decide to withdraw $2,000 in investment earnings from your account. In such a scenario, can you withdraw those earnings tax-free and penalty-free?

No. You can not.

Why? While you're now 60 years old, which is older than the 59 ½ year old minimum requirement, your account has only been open for 3 tax years, which is NOT long enough to meet the 5 year rule. As a result, you'll owe income taxes and a 10% early withdrawal penalty on those funds unless you wait an additional two tax years to withdraw those funds.

Ordering Rules

The IRS imposes ordering rules for all Roth IRA withdrawals, meaning your distributions must be taken in a specific order. As a general rule, you need to withdraw funds from your Roth in the following order...

1) Principal contributions
2) Conversion and rollover contributions
3) Investment earnings

This is important to know for purposes of taxes and penalties. For instance, principal contributions are never subject to income tax or early withdrawal penalties, so until you withdraw all of those funds, you don't have to worry about the IRS implications.

Minimum Distributions

Are there minimum Roth IRA distributions?

The answer is no. Unlike a Traditional IRA, which requires account holders to begin making minimum distributions at age 70 ½, a Roth IRA has no such limitations.

In fact, with a Roth IRA, you can make annual contributions to your account well past age 70 ½ assuming you meet the Roth IRA income requirements.

Education Distributions

Under the Roth IRA distribution rules, you can withdraw funds early from your Roth IRA to pay for higher education expenses (tuition, books, etc.) for yourself, your spouse, your children, or your grandchildren.

If you do so, the withdrawal is viewed as a penalty-free, non-qualified distribution.

So what does that mean?

It means any investment gains you withdraw are subject to income taxes, but you avoid the 10% early withdrawal penalty associated with most non-qualified withdrawals.

First Home Purchase Distributions

You can also take an early Roth IRA distribution in order to pay expenses related to the purchase of a first home. However, the amount you can withdraw is subject to a $10,000 lifetime maximum.

In addition to you and your spouse, the Roth IRA home purchase distribution is also available to your children and grandchildren.

Unlike the education exemption, a first home purchase distribution is treated as a qualified distribution, meaning it's NOT subject to income taxes or the 10% early withdrawal penalty. However, keep in mind that the $10,000 lifetime limit on this exemption applies not only to you, but the account in its entirety.

For example, suppose you withdraw $5,000 for help with the purchase of your first home. Five years later, you withdraw another $5,000 to help your daughter with the purchase of her first home. At this point, your $10,000 lifetime limit is exhausted. So if another child or grandchild purchases a first home, you can longer withdraw funds early in order to help pay for expenses related to the purchase of a first home.


When it comes time to make a withdrawal from your Roth IRA, you need to know the Roth IRA distribution rules. Otherwise, you might find yourself in a pickle with the IRS.

Know the difference between a qualified distribution and a non-qualified distribution, and know what the exceptions are for making an early withdrawal from your account.

If you take the time to education yourself, you can potentially save thousands of dollars as well as reserve the flexibility to build your financial plans on a solid foundation of knowledge.

Additional Information on Roth IRA Distributions

College Savings Distributions

You already know that you can avoid the penalty associated with an early Roth IRA distribution if you use the withdrawn funds to cover higher education expenses for yourself, your spouse, or your children's descendants...

But does that make your Roth IRA a legitimate option as a college savings plan? Depending on your current options, as well as your child's educational path, it just might.

For instance, if you plan for your child to attend an in-state school no matter what, you might want to consider your state's 529 college savings plan. But what if your child wants to attend an out-of-state Ivy League school? Is your Roth IRA a smart way to save for such a possibility?

Take the time to examine the option of using your Roth IRA as a possible college savings vehicle.

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