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Roth IRA Withdrawals for the Unemployed

What about Roth IRA withdrawals for the unemployed?

Does the IRS grant you an exemption in regard to taxes and penalties if you make an early withdrawal from your account due to the loss of your job?

In some cases, the answer is yes.

First, if you're unemployed and in dire need of money, remember that the IRS does not tax or penalize you for withdrawing Roth IRA principal.

However, if you withdraw investment gains, rollover funds, or conversion funds prior to reaching age 59 ½ and meeting the 5 year rule requirements, you will likely owe income taxes and a 10% early withdrawal penalty.

Unless, of course, you qualify for a special exemption which applies to Roth IRA withdrawals for the unemployed.

Roth IRA Withdrawals for the Unemployed

If you're unemployed and you paid out-of-pocket for medical insurance premiums during the year (for yourself, your spouse, and/or your dependents), you may qualify for an exemption from the 10% early withdrawal penalty.

However, to do so, you must meet all of the following conditions:

1) Lose Your Job

In order to avoid the 10% early withdrawal penalty on funds used to cover your out-of-pocket medical insurance premiums, you must first lose your job.

But alone, losing your job is not enough to meet the requirements for this special exemption.

Additional conditions apply as well...

2) Receive Unemployment for 12 Weeks

You must also receive unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.

So if you only received unemployment benefits for six weeks, you're NOT covered under this exemption. But if you received unemployment benefits for 5 straight months, then you are.

3) Receive Distributions in a Particular Year

In addition, you must receive the withdrawn funds during either the year you received unemployment benefits or the following year.

The exemption doesn't retroactively apply to withdrawals you made in years prior to receiving your unemployment benefits.

4) Receive Distributions Within 60 Days of Reemployment

Finally, you must receive the withdrawn funds no later than 60 days after you have been reemployed.

So, if you withdraw funds 2 weeks after you've been hired by a new employer, then you're covered by this exemption, and you avoid paying the 10% early withdrawal penalty.

But if you withdraw funds 3 months after you're been hired by a new employer, you're NOT.

Does that make sense?

Let's look at an example...

Example Scenario

Let's say it's January, and you're 43 years old with a Roth IRA worth $78,000. The entire balance of your Roth IRA is investment gains from contributions you withdrew tax-free and penalty-free years before.

On February 20th, you lose your job. Along with your job, you lose your health insurance.

As a result, you go on COBRA and pay $800 a month out-of-pocket for your medical insurance premiums.

You also go on unemployment while you search for a new job.

After a rough few months, and $3,200 in unreimbursed medical insurance premiums, you finally land and start a new job on July 1st.

Two weeks later, you make a $3,200 early withdrawal from your Roth IRA, a withdrawal which is subject to income tax but avoids the 10% early withdrawal penalty. Of course, this helps cushion the blow from your stint of unemployment.

So why was your withdrawal not subject to the 10% early withdrawal penalty?

Because you met all the exemption criteria for Roth IRA withdrawals for the unemployed. You:

  • Lost your job
  • Received unemployment compensation for at least 12 consecutive weeks
  • Received your distribution in the year you received unemployment compensation
  • Received the distributions no later than 60 days after you were employed again


There are special rules concerning Roth IRA withdrawals for the unemployed.

As long as you meet the specific criteria, you can avoid paying the 10% penalty on early withdrawals of your investment gains, rollover funds, or conversion funds.

Your early withdrawals are still subject to income taxes, but avoiding the extra 10% tax can prove quite helpful during a very difficult and challenging time.

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