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Roth IRA Withdrawal Penalty

Is there a Roth IRA withdrawal penalty?

What happens if you withdraw funds before age 59 ½?

It depends on whether or not you've met certain IRS requirements.

As a general rule, if you have NOT...

Reached age 59 ½, and had an open and funded account for at least 5 tax years.

Then any withdrawals will most likely result in a penalty.

Roth IRA Withdrawal Penalties

If you trigger a Roth IRA withdrawal penalty, what happens?

The most common penalties are:

  • Income taxes, and/or
  • A 10% early withdrawal penalty

If you withdraw funds, and it results in an income tax liability, then you're tax bill is determined by your income tax rate for the tax year in which the funds are withdrawn.

The 10% early withdrawal penalty doesn't vary. It's always 10%, and it's usually in addition to the income taxes you owe.

So what are the circumstances in which you can incur a Roth IRA withdrawal penalty?

In most cases, if you're subject to a Roth IRA withdrawal penalty, it will be for one of the following reasons...

Roth IRA Withdrawal Penalty

Withdrawals Prior To Age 59 ½

You can get hit with a Roth IRA withdrawal penalty if you withdraw investment gains prior to age 59 ½.

Original contributions can be withdrawn at any time without penalty regardless of age, but investment gains, rollover funds, and conversion funds are subject to different treatment.

While exceptions do exist, most non-original contribution withdrawals are fully taxable as income in the year withdrawn and subject to a 10% early withdrawal penalty.

Need an example?

Let's say you're 31 years old. You're in the 25% income tax bracket, and your Roth IRA has a total value of $30,000 - $20,000 in original annual contributions and $10,000 in investment gains.

If you close your account, the IRS will impose a Roth IRA withdrawal penalty because you haven't yet reached age 59 ½.

The first $20,000 of your withdrawal is tax free and penalty free because you're simply withdrawing your original contributions which were made with after-tax dollars.

However, your $10,000 investment gains is subject to your 25% income tax rate as well as the 10% early withdrawal penalty.

So taxes amount to a total of $3,500 on your $10,000 investment gain, leaving you with only $26,500 of the $30,000 that was in your Roth IRA.

Withdrawals And The 5 Year Rule

You can also get hit with a Roth IRA withdrawal penalty if you withdraw investment gains prior to the meeting the requirements of the 5 year rule.

According to the IRS, you must open and fund your Roth IRA for five tax years before you meet the requirements of the Roth IRA 5 year rule.

So even if you're older than age 59 ½, you can't automatically assume that you're eligible to make tax-free, penalty-free withdrawals. You also have to comply with the 5 year rule.

Need an example?

Let's say you open a Roth IRA in 2012 at the age of 58. Three years later, you're 62 years old and the account is worth $20,000 - only $15,000 of which is comprised of annual contributions on your part.

While the first $15,000 is made up of original contributiions which can be withdrawn tax and penalty free, the remaining $5,000 in investment gains are subject to income taxes and a 10% early withdrawal penalty even though you're well past age 59 ½.


Even though at 62, you're older than 59 ½, you still haven't met the 5 year rule requirement.

Remember, your account must be open and funded for at least 5 tax years before you meet the IRS requirement.

An account opened and funded in the 2012 tax year won't be in compliance with the 5 year rule until 2017, when five tax years will have passed... 2012, 2013, 2014, 2015, and 2016.

So in this case, any investment gains withdrawn prior to 2017 are subject to a Roth IRA withdrawal penalty.

Conversion Withdrawals

Conversion funds are also subject to a Roth IRA withdrawal penalty if you distribute the funds too early.

It's important to know that each Roth IRA conversion is independently subject to the Roth IRA 5 year rule.

So even if you're overall Roth IRA met the requirements of the 5 year rule long ago, a new conversion must independently meet the 5 year rule before withdrawals are in compliance.

Sound complicated?

It's really not. Take the following example...

Let's say you open and fund a Roth IRA in 2008 at age 50, then 10 years later in 2018, you convert part of your Traditional IRA to a Roth IRA.

Can you make withdrawals in 2022 without having to pay taxes and penalties?

Only if you're withdrawing your original contributions. Any conversion funds or investment gains are subject to income taxes and a 10% early withdrawal penalty if you take them out?

But why? After all, by now you're Roth IRA is 14 years old and you're 64 years old - putting you in compliance with both the 5 year rule and the age 59 ½ rule.

Nevertheless, the conversion you made in 2018 is independently subject to the 5 year rule, meaning you can't withdraw any conversion fund tax and penalty free until 2023 at the earliest.

Your investment gains can be withdrawn tax free and penalty free, but due to the IRS ordering rules for Roth IRA withdrawals, you can't withdraw your investment gains until you've withdrawn every penny of your rollover or conversion funds.

So that means in order to withdraw your investment gains tax free, you first need to withdraw your taxable conversion funds!

So if you've converted to a Roth IRA in the past five years, make sure you tread carefully before making any Roth IRA withdrawals. It's always wise to consult a financial professional first.


You face the very real prospect of a Roth IRA withdrawal penalty which takes the form of either income taxes, a 10% early withdrawal penalty, or both.

To avoid these taxes and penalties, make sure you have...

  • Reached age 59 ½
  • Met the requirements of the 5 year rule, and
  • Met the requirements of the 5 year rule for each conversion

Meet each of those requirements, and all your Roth IRA withdrawals should be tax-free and penalty-free!

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