Roth IRAs are governed by the IRS; as such there're many Roth IRA withdrawal rules that should be followed before you take money from your account.

In this article we'll discuss Roth IRA distributions; when they could be taken, when and if they're taxable, when and if fines might apply, and any exceptions to the Roth IRA withdrawal rules.

Normally, distributions that are considered "qualified" and distributions that represent contributions you made to the Roth IRA aren't taxable. Additionally, Roth IRA funds that are transferred from one account to another (Roth IRA ), are also not taxable.

But, Roth IRA withdrawals that aren't "qualified" or is not a return of your original contributions might be subject to taxes and/or penalties.

Roth IRA Contributions Could Be Withdrawn Tax Free at Anytime

Let's talk about return of contributions first. What this means is that you can get the contributions made to your Roth IRA out at anytime, for any reason, without taxes or fines. Most of the people are unaware of this rule, and it's a vital one. The ability to get your contributions out tax and penalty free makes the Roth IRA a very convenient investment vehicle.

The ability to get your contributions out at anytime means you can use your Roth IRA as an emergency fund, to save for college expenses, or for any financial objective. Let us hope Congress does not ever change this rule!

Qualified Distribution Rules for Taking Earnings Out of a Roth IRA

While you're able to get your contributions out at any time without worrying about paying taxes and/or fines, this isn't true for the earnings on your contributions. To get the earnings out of your Roth IRA without paying taxes or penalties, you should follow the "qualified distribution" rules.

Therefore what's a qualified Roth IRA distribution? According to the IRS, a qualified distribution is a Roth IRA withdrawal that:

1. Is made five years after the Roth IRA is setup and contributed to, or

2. Is made:

- When you reach age 59 1/2,
- As you are disabled,
- To a beneficiary (or your estate) after your death, or
- Meets the first time home buyer exception (more information later)

Any withdrawals that meet the requirements above won't be subject to income taxes. But, if you take a distribution that is not considered a qualified distribution, you might have to pay a 10% penalty on the amount withdrawn.

Exceptions to Early Withdrawal Penalty

If you take a withdrawal from a Roth IRA that does not represent your original contributions, or is not a "qualified" distribution as defined earlier, then you might be subject to a 10% penalty (the IRS calls this extra tax). Thankfully, there're several exceptions to the 10% early withdrawal penalty.

Following are some situations in which the 10% early withdrawal penalty may not apply:

- You're age 59 1/2 or older,

- You're disabled,

- You qualify as a first time home buyer (distributions of up to $10,000 can be taken penalty free to be used towards the purchase of your first home),

- The distributions are part of a series of substantially equal payments (i.e., those payments must generally last for five years or until you reach age 59 1/2, whichever is longer),

- You are using the withdrawal to pay for vital un-reimbursed medical expenses, or

- The distribution is being used to pay qualified higher education expenses.

There are some other exceptions, but these are the major ones.

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