Making a Roth IRA Withdrawal Can Be Tax Exempt

Roth IRAs are more financial flexibility then traditional ones, especially if you ever need to access your money early from an IRA account for whatever financial reason. A Roth IRA withdrawal allows a person to take out money from their regular contributions without having to pay a tax or penalty.

This is allowed because with a withdrawal you are able to take money out from the nontaxable funds that were created from the first financial contributions made. It is like getting money early for interest that you have already accumulated from previous contributions to your Roth IRA.

Even if you have multiple accounts they are financially viewed as one when taking out the money because they are based on overall contributions. Say you have one that has $4000 in contributions invested in it that is now worth $5000 and another from an entirely different year that started off as $2000 and now has matured into $2500. You can take out the entire $2000 from the second Roth IRA tax-free.

In some cases when an investor pulls out more money then what is allowed they are forced withdrawal an equal amount out of their principal investment. In plain language it is like having a savings account that earns interest. The more money you have in the more you earn from interest. The two requirements to withdrawal money without having to pay tax on those funds are to receive a qualified distribution of earnings.

First, it is accomplished by meeting the five-year test, which for example would be any IRA started would have to have been open for five years for a tax-free withdrawal. Second, is the payment or distribution by someone 59 ½ years old, disabled, made to a beneficiary after your estate after your death, or one that meets the requirements detailed in the First home (homestead) exceptions tax credit section of the tax code.

Source by Robert Dant

Diana McCalpin is an accountant who manages a Certified Public Accounting Practice in Laurel, Maryland which performs audit, accounting and tax services to customers. She loves to share information with clients to help them grow their businesses and be profitable.

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