Withdrawals

Unlike with Traditional retirement account distributions, your Roth distributions may or may not be included with your taxable income.

You may withdraw the contributions that you made into your Roth IRAs, 401(k) and 401(b) retirement plan accounts at any time, for any reason, without incurring and income tax or penalties, as long as it’s been as least five (5) years since you first made contributions into any Roth retirement account.  This is known as the “Five-Year Rule”. This is because you made those contributions with after-tax dollars, so you've already paid income taxes on that money.  This is one of the key reasons why Roth retirement accounts make such good after-tax savings accounts for teenage children, and for that matter, for all of us.

The IRS rules for withdrawing the earnings from Roth IRAs, 401(k) and 401(b) retirement plan accounts are different, however.  You may withdraw the earnings that were reported in your Roth IRAs, 401(k) and 401(b) retirement plan accounts at any time if you are at least age 59½.

For example, suppose that you are age 57 and opened your first Roth IRA in 2022.  You can tap earnings from this Roth IRA penalty-free at age 59 ½; however, you won't be able to tap earnings tax-free until 2027.
 
It's best to Roth account funds only if it's absolutely necessary.  If you must withdraw any money from a Roth account before retirement, you should limit it to contributions and avoid taking out any earnings.

Any Roth earnings Distributions received if the Five-Year Rule and age 59½ requirements are not met will be subject to a 10% Federal early withdrawal penalty tax calculated on Form 5329.  There is no exception to the 10% additional tax specifically for hardships.

However, if you take distributions of contributions from your Roth retirement accounts prior to the five (5) year holding period, such Distributions will be subject to a 10% Federal early withdrawal penalty tax calculated on Form 5329.
 
The ability to tap contributions from your Roth retirement accounts without penalty before age 59 1/2 allows for flexibility to utilize Roth accounts for other financial purposes.  In essence, a Roth account can act as an emergency fund that could be used to pay off significant unexpected medical bills or cover the cost of a child's education, if needed.

All Distributions from your Roth retirement accounts will be reported on a Form 1099-R for that tax year, with Code “B” recorded in Box 7 to indicate that such distributions were received tax-free as qualified distributions from designated Roth accounts.