ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Cashing Out Roth IRA?

Updated on December 8, 2010

If you’re reading this, you’re probably in a situation where you are considering cashing out your IRA. As I’m in a similar situation, I decided to research cashing out a Roth IRA. I also researched cashing out a 401k and a traditional IRA, but the Roth IRA makes most sense to cash out. The primary reason it makes most sense to cash out the Roth IRA is that the Roth IRA is a post-tax retirement vehicle. This means the tax is already paid on the money you contribute to a Roth IRA. Therefore, if you withdraw money from a Roth IRA, you won’t have to pay taxes on the money withdrawn. Both a 401k and Traditional IRA are pre-tax investment vehicles – you pay the tax when you take money out of a 401k or Traditional IRA.

No penalty for withdrawing money from the contributions on a Roth IRA at any age!
No penalty for withdrawing money from the contributions on a Roth IRA at any age!

Early Roth IRA Withdrawal Facts Made Simple

  • First we need to define a couple important terms:
  1. Contribution – a contribution is money you have contributed to the Roth IRA. This is the money that you already paid taxes on and invested in the Roth IRA.

  2. Earnings – earnings are the money you’ve made from your Roth IRA contribution. This is basically the interest and dividends you made on your principle (contribution).

  • 59 ½ is the default age where you can withdraw ANY money (contributions or earnings) from a Roth IRA without any penalties. You also must have funded your IRA for at least 5 years.
  • You can withdraw contributions, penalty-free, from a Roth IRA at any age! This means if you contributed $100,000 towards a Roth IRA and your Roth IRA is now valued at $150,000, you can withdraw $100,000 penalty and tax-free at any age. The remaining $50,000 is considered earnings and is taxable and subject to a 10% penalty.

Kiplinger Video on Getting Cash from your Assets, including a Roth IRA

Exceptions to Roth IRA Earnings Penalties and Taxes

There are a few special situations that allow you to withdraw both contributions and earnings at any age, without any penalties:

  •  First-time home purchase: Up to $10,000.
  •  Qualified education expenses: For you, your spouse, your kids or even your grandkids. Approved expenses include post-secondary education, tuition, books, supplies and, if the student is enrolled at least half-time, room and board.
  • Disability: To qualify for a disability exemption, you must prove that you are incapable of working.
  • Unreimbursed medical expenses: Expenses must exceed 7.5% of your adjusted gross income.
  • Health insurance for the unemployed: Only after 12 consecutive weeks of collecting unemployment benefits.  Source


Conclusion

I don’t recommend withdrawing money from any retirement account at all; however, if you’re in dire need of money, withdrawing your contributions from a Roth IRA is a decent option. This option is much better than tapping a 401k or Traditional IRA.

Useful Links

  • IRS Rules for Roth IRA - includes a decent flowchart, but overall a little convoluted, like most government pubs!
  • RothIRA.com - great site, dedicated to Roth IRAs, that is easy to understand.


working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)