Withdrawing Your Roth IRA Contributions
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FacebookI’ve written on several occasions about the fact that you can withdraw ‘regular’ (i.e., annual) contributions to your Roth IRA at any time, and for any reason, without incurring taxes or penalties (e.g., here, here and here). A recent commenter, however, challenged the veracity of this claim, so I started digging for additional information. As it turns out, the answer is right there in black and white in IRS Publication 590 (although they don’t go out of their way to highlight this factoid)…
You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).
Need more info? Check out Fairmark.com (an excellent tax website), where you’ll find the following on one of their Roth IRA pages:
The rules for Roth IRAs permit you to do something that isn’t allowed for regular IRAs: withdraw the nontaxable part of your money first. Distributions from regular IRAs come partly from earnings and partly from contributions. But when you take money out of a Roth IRA, the first dollars you take out are considered to be a return of your non-rollover contributions. You don’t have to meet any special tests to receive those dollars free of tax. You can take them out any time, for any reason, without paying tax or penalties.
You can also check out the Yahoo! finance page on Roth IRA distributions, where you’ll find much the same information (mainly because it’s written by Kaye Thomas, who runs Fairmark). Search a bit more widely and you’ll find that Investopedia.com tells us that:
Distributions of Roth IRA assets from regular participant contributions and from nontaxable conversions of Traditional IRA can be taken at anytime, tax and penalty free…
And over at the Motley Fool, you’ll find that:
Be aware that you may take your regular Roth IRA contributions (but not earnings) at any time for any purpose free of income taxes and penalty.
So there you have it… Regular Roth IRA contributions can be yanked out whenever you want without having to pay the piper.
So why am I telling you this? Simple. It’s not that I want you to drain your retirement account — quite the opposite… The flexibility to withdraw your contributions means that you can stretch your budget and stuff your Roth with money even if you’re not sure that you can really afford it. Worried that your car might break down? Or that a medical emergency might arise? Don’t let that get in the way of maxing out your Roth IRA, as you can always unring the bell (so to speak) if necessary. But you can’t go back and make those contributions in future years, so do it now (and every year) while you still can.
Published on May 2nd, 2006 - 26 Comments
Filed under: Retirement, Saving & Investing, Taxes
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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26 Responses to “Withdrawing Your Roth IRA Contributions”
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May 2nd, 2006 at 10:41 am
Excellent post, I’ve been looking for something black and white like this….great job!
May 2nd, 2006 at 10:48 am
One of the major drawbacks of taking a Roth withdrawal is that you can’t really put the money back in. If you put in $4000 one year and take out $2000, then you’re going to be $2000 behind forever, assuming you’re maxing out your contributions each year. So it’s kind of a last resort.
May 2nd, 2006 at 11:38 am
Jerry: I agree completely. I’m only recommending this as a safety net for those that otherwise wouldn’t be contributing to their Roth out of fear of a cash flow crunch. In this case, those individuals would be best served by stuffing their Roth and then hoping for the best. If they can stave off the cash flow crunch, then they’ll come out ahead. If not, they can always get the money back out.
May 2nd, 2006 at 12:58 pm
Is the contribution limit to a Roth IRA net? For example, if I contributed 4000 in the beginning in the tax year, but a few months later withdrew 2000. Would I still be able to recontribute 2000 before the end of the tax year? Is this viewed as a 6000 dollar contribution for the year or a net 4000 contribution?
May 3rd, 2006 at 3:32 pm
I can’t seem to find a clear and explicit explanation of how this affects conversions from a non-taxable traditional IRA that was put into a Roth IRA. That being money that was put into a traditional IRA that was put in on a pre-tax basis and then converted to a Roth IRA and then the full taxes paid on the entire conversion amount at the time of conversion. This money is taxed in the same way as a normal contribution is but it allows one to pile a lot more money into the Roth if you have money in a traditional (especially if rolled from a former 401-k) and meet the income limits to qualify for the conversion.
There is one quote above that mentions “and from nontaxable conversions of Traditional IRA” but I am not sure exactly what that means. What exactly is a nontaxable conversion? My conversions were from non taxable IRAs but the conversion itself was most definatley a taxable event. I would think I could withdraw that entire sum in addition to contributions since I have already paid the full tax on it but perhaps that is not the case.
Is it clear what I am talking about? Can you shed any light on that nickel?
May 3rd, 2006 at 3:44 pm
ok, I followed the Investopedia link above and found this. Assets are taken out in the following order:
1. regular Roth IRA participant contributions.
2. taxable Traditional IRA conversions.
3. nontaxable Traditional IRA conversions.
4. earnings on all Roth IRA assets.
#2 is the one I was talking about.
only 1 and 3 are fully tax and penalty free. 2 is tax free since taxes are paid at conversion but will have a 10% penalty if it has been less than 5 years since the conversion. If its been more than 5 years then it is also tax and penalty free. I think I recall reading something like that now that I see it again.
It doesn’t seem to make much sense to me that 2 comes out before 3 but I guess its amazing it makes as much sense as it does.
So in case anyone was wondering, I answered my own question for you.
I try to keep pretty good records of my conversions and contributions but my Roth has been moved around a little bit and I lost a little paperwork. I had recently worked to rebuild my paper trail by contacting the plan administrators and asking for back paper work and I think I have the trail fully rebuilt. I don’t plan to tap it, but I just wanted to know if I did that I could prove my contributions and conversions.
May 3rd, 2006 at 3:51 pm
Ok last post, promise.
Is anyone concerned that the government will one day change the rules on Roth’s especially with the impending social programs financial problems? Thats the other reason I wanted to rebuild my paper trail. If they did change the rules I don’t know in what manner they would do it but if they did it would make the Roth a far inferior vehicle to anything tax deductible.
Anyone concerned about this? I have heard some financial advisors comment on its possibility. If it happens I would hope they would just halt future contributions and not tax anything currently in Roth accounts. However my fear is that the desire to do it would stem from the need for more tax revenues. The large untaxed stream of dollars sitting in Roth’s could be pretty tempting to some who think that certain people are not paying their fair share by having this money on which they will never owe any tax. It wouldn’t be too hard for people to start a fairness argument about it and get some serious headway.
May 4th, 2006 at 5:11 pm
Good Job Nickel-That doubting Thomas would really fret when you tell em that some people even put real estate in their Roth’s! Pretty sweet for folks who have the cash in the Roth’s and don’t want to worry about tax gains when flipping properties!
May 8th, 2006 at 2:15 pm
Great job nickel, very informative post.
May 11th, 2006 at 1:35 pm
Awesome thanks! This was my understanding, but I hadn’t really found an authoritative document that explicitly said it.
May 23rd, 2006 at 7:19 pm
Withdrawing from your IRA (or the ability to) provides much needed flexability but should still be one of the last resorts since you are truly defeating the tax purposes and taking a hit to your retirement.
May 24th, 2006 at 10:00 am
I don’t think it is that clear. I’ve been reading through IRS p590 and it says you can pull out contributions by due date of the tax return for the year the contribution was made. Then it says you must include the earnings as income for the year of the contribution. Previous years contributions aren’t considered qualified and are subject to the additional (10%) tax on early distributions. I think ‘regular contribution’ only refers to that tax years contribution and must be pulled out before the tax return due date to avoid the penalty.
November 3rd, 2006 at 8:48 am
Was just going back through some old posts and, seeing as I was the ” recent commenter, however, challenged the veracity of this claim, ” referred to above, I must say it makes me feel a little better to realize that there are plenty of other people somewhat confused about this topic. It was a great post nickel…thanks!
November 3rd, 2006 at 9:10 am
Norm, thanks for your comments… They keep me honest!
November 3rd, 2006 at 11:04 pm
What if you contribute at the beginning of 2007, but then you get a big bonus, big raise which puts you over the contribution limit? You have to take it out right? But what about the increase in value of the $4k?
April 4th, 2008 at 9:41 pm
I thought you could pull out your contributions and the IRS gave you 60 days to put them back in. Is this true?
August 12th, 2008 at 7:08 pm
I’m interested in the rules regarding withdrawing your contributions and putting them back in. Does anyone know the rules on that?
August 14th, 2008 at 12:31 pm
Looking for clarification: converted IRA to Roth IRA over 5 years ago (paid appropriate taxes at the time);
I am under age 59 – can I make a withdrawal of ‘contributions’ [not earnings] both tax and penalty free?? is there a minimum or maximum withdrawal??
thank you.
August 14th, 2008 at 2:09 pm
Carol – you can take out any amount of your contributions tax-free at any time. I also found out that you can put your contribution (only for the current year) back in within 60 days.
April 4th, 2009 at 4:30 pm
It may be a personal failing on my part, but I’m having trouble sorting out why the differences of treatment (if any) relative to withdrawals of regular yearly contributions vs withdrawals of contributions as the result of a roll-over.
If funds injected into a Roth from a rollover of a Traditional IRA are fully tax paid, why a five year wait to access the funds without penalty??
Is there a justification? Thanks, Jack
June 5th, 2009 at 1:40 am
I understand that withdrawing the contributory asset from the Roth IRA is tax and penalty free after 5 years. My only question is HOW do I withdraw it. Do I need to fill in any IRS form? Thanks.
June 14th, 2009 at 8:21 pm
The IRS answered these questions and others about Roth IRAs in Regulation 1.408(A)-6, which you can read free of charge on the web site of the US Gov’t Printing Office:
http://edocket.access.gpo.gov/.....408A-6.htm
IRS Regs are authoritative guidance.
June 30th, 2009 at 12:29 pm
It is a terrible idea to withdraw contributions from your Roth IRA. Unless you are in dire need, you are hurting yourself in the long run because that money won’t continue to grow for your retirement.
September 15th, 2009 at 12:04 pm
i am a little confused on the 5 year withdrawal without penalty rule. eg If I contributed 4,ooo each year for the last 5 years, am i able to take out all 20,000 now if needed or does each years contributions have to be in there for 5 years… In other words would I only be able to take out the first $4,ooo now because that is the only contributions that has been in there for five years?
November 25th, 2009 at 1:19 pm
Ok what if I put $2000 in a Roth IRA in 2005 but have not contributed since. The account has fluctuated from $2000 to as low as $1300. It is now back up to around $1900. Can I pull it all out without penalty or will I be penalized because 1) I haven’t been contributing, or 2) because even though I contributed $2000 it went down and gained $600 so the $600 is taxable?
November 25th, 2009 at 4:10 pm
You can take out any principal you’ve put in. It doesn’t matter when you contributed as long as you don’t withdraw more than the total you’ve contributed.