Roth IRAs are governed by the IRS; as such there are lots of Roth IRA withdrawal rules that should be followed before you take money out of your account.

In this article we will discuss Roth IRA distributions; when they can be taken, when and if they are taxable, when and if fines might apply, and any exceptions to the Roth IRA withdrawal rules.

Generally, distributions that are considered "qualified" and distributions which represent contributions you made to the Roth IRA aren't taxable. In addition, Roth IRA funds that are transferred from an account to another (Roth IRA account), are also not taxable.

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

Roth IRA Contributions Could Be Withdrawn Tax Free at Any Time

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

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

Qualified Distribution Rules for Taking Earnings Out of a Roth IRA

While you are able to get your contributions out at anytime without worrying about paying taxes and/or fines, this is not true for the earnings on your contributions. To get the earnings from your Roth IRA without paying taxes or penalties, you must follow the "qualified distribution" rules.

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

1. Is made 5 years after the Roth IRA is set up and contributed to, or

2. Is made:

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

Any withdrawals that meet the requirements above will not be subject to income taxes. But, if you take a distribution that is not considered a qualified distribution, you may require to pay a 10% penalty on the amount withdrawn.

Exceptions to Early Withdrawal Penalty

If you take a withdrawal out of a Roth IRA that does not represent your original contributions, or isn't a "qualified" distribution as defined earlier, then you may be subject to a 10% penalty (the IRS calls this additional tax). Thankfully, there're many exceptions to the 10% early withdrawal penalty.

Following are several situations in which the 10% early withdrawal penalty might not apply:

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

- You are disabled,

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

- The distributions are a part of a series of substantially equal payments (i.e., those payments must usually last for 5 years or until you reach age 59 1/2, whichever is longer),

- You're using the withdrawal to pay for huge un-reimbursed medical expenses, or

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

There're a few other exceptions, but these are the main ones.

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