Roth IRA withdrawals are different from regular IRA withdrawals. Since no Roth IRA contribution is ever deductible, most Roth IRA withdrawals will not be taxed.
(If you have questions about a regular IRA withdrawal, read this article about regular IRA withdrawals.)
Roth IRA Withdrawal Rules – Roth IRA Withdrawal During Retirement
Provided you have reached at least the age of 59 ½ and have had your Roth IRA account open for at least five years, all of your Roth IRA withdrawal is tax-free. Such tax-free income is among the biggest benefits of a Roth IRA.
Roth IRA Withdrawal Rules – Roth IRA Withdrawal Prior to Retirement
The Roth five-year rule is not as straightforward as you might think, since satisfying the five year rule can actually take less than five years, according to the IRS definition. But if you do not reach age 59 ½ or you have not yet satisfied the five-year rule, you might be subject to some tax on your Roth IRA withdrawals.
Roth IRA Withdrawal Rules – Return of Basis
There is no tax due on any Roth IRA withdrawal if the total amount you withdraw is less than the amount you previously contributed. For example, if over several years your contributions were $20,000 and you subsequently withdraw $5,000, none of your withdrawal will be taxable. In tax jargon, a withdrawal of previous contributions is considered a return of basis.
Roth IRA Withdrawal Rules – Withdrawing Roth IRA Funds From After a Conversion
If Roth IRA funds are added via a Roth IRA conversion, these funds – specifically - must meet the five-year rule themselves. As such, if you convert a Roth IRA and then take some of those converted monies the next year, your withdrawal would be taxable.
Roth IRA Withdrawal Rules – The 10% Early Distribution Penalty
In addition to the regular tax, a 10% early distribution penalty is assessed on distributions that are made if the account holder has not yet reached age 59 ½. However, the 10% early distribution penalty will only be assessed on withdrawals that are taxable. As such, any withdrawals that are returns of basis aren’t subject to the early distribution penalty, even if the taxpayer is under 59 ½.