Roth IRA penalties

The Roth IRA has certain Early Withdrawal Penalties. But these are not of serious concern unless some rules are not met. The rules of IRS state that original contributions can be withdrawn at any point of time, irrespective of the purpose, free of tax and penalty. The early withdrawal penalties apply only to the Roth investment gains, states roth-ira.org.

The cases when the taxes and penalties are applicable are:
1.Lesser age than stipulated
2.When the 5 yr rule is not met

The above cases are discussed in detail below:
Age stipulations:
You must be at least 59.5 years old in order to be relieved of early withdrawal penalties and taxes.

For example, if your birthday is in November, you will reap the benefits of this rule only in the tax year that follows the year of your 59th birthday. But if you happen to have born in February, you will be benefited by the rule in the same tax year as that of your 59th birthday.

The 5 yr rule:
This rule is in addition to the above rule regarding your age. This rule states that in order to have withdrawals that are free of tax and penalties, the account must have been opened and funded for a minimum of 5 tax years.
It follows that if you open your account this year and start funding it, you’ll be able to withdraw without worries about tax and penalties after the passage of 5 tax years.
If the above conditions are not fulfilled, there is most likely a penalty or tax or both. However there are a lot of exceptions to these general rules and it is highly recommended that one reads the specific rules that are applicable. Examples of such exceptions are when you buy your first home, when you pay for higher education, and a few more.

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