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Find out the Roth IRA withdrawal rules, qualified and non-qualified withdrawals and how to make your funds grow.
When Can You Withdraw From a Roth IRA?
The money youve added to your account is known as your contributions.
you might withdraw your contributions from a Roth IRA without paying taxes or penalties.
you’re free to enjoy tax-free growth during retirement.
Since youve contributed after-tax dollars, theres no additional tax liability.
Earnings
Earnings represent your investments growth over time.
If you withdraw earnings without meeting these conditions, its considered a non-qualified withdrawal.
Non-qualified withdrawals are subject to a 10% penalty and income tax, unless you qualify for an exception.
This allows more options for long-term planning.
However, if you withdraw early, it reduces the amount of funds in your Roth IRA.
This can impact your future retirement savings.
Roth IRA Withdrawal Rules
There are key differences between a qualified withdrawal and a non-qualified withdrawal.
Heres how to make that distinction.
Qualified Withdrawals
A qualified withdrawal means youve met these conditions.
If you have, you will not have to pay taxes or penalties.
You may receive a penalty, incur taxes or both.
Certain exceptions apply to non-qualified withdrawals to allow you to avoid penalties.
How To Avoid Penalties with Non-Qualified Withdrawals
You may have some situations where there are no penalties.
This means you could hold that money in your account to grow tax-free.
This leaves you subject to a 10% penalty and you may owe taxes.
Final Take
A Roth IRA is a way to grow your money tax-free.
There are exceptions to these penalties, including first-time home buying, qualified educational expenses or disability.
Roth IRA Withdrawal Rules FAQ
Melanie Grafilcontributed to the reporting for this article.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your Financial Advisor options today for Free!
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