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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 Therefore, if you withdraw money from a Roth IRA, you won’t have to pay taxes on the money withdrawn.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


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!
  • - great site, dedicated to Roth IRAs, that is easy to understand.


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