Withdrawal Rules for Roth IRAs

Distributions are not required from your Roth IRA during your lifetime.
Unlike traditional IRA holders, Roth IRA holders are not required to begin taking Required Minimum Distributions upon reaching 70 ½.
Once you’ve reached 59 ½, you may take qualified distributions from your Roth IRA provided you’ve held the IRA for five or more years.

Qualified Distributions

A single five-year holding period applies to determine whether you can withdraw earnings tax-free as part of a qualified distribution from your Roth IRA
The five-year period begins on the first day of the tax year for which you make your first regular contribution—or, if earlier, the first day of the tax year in which you make the first conversion contribution.
If you withdraw money within five years, you may owe taxes and penalties—even if the contribution came from a Traditional IRA conversion.

If you withdraw money within five years

Generally, distributions from your Roth IRA within the five-year period follow a three-step order of withdrawals, as illustrated below:

Contributions are removed first, and you don’t have to pay tax or penalties on this portion of the withdrawal.

Amounts which were converted from a traditional IRA are taken out next on a first-in, first-out basis. Withdrawals of these amounts are tax-free but are subject to a penalty within five years of the conversion date.

Earnings are removed last and are subject to a penalty unless one of the following penalty exceptions applies:

First-time home purchase
Age 59 ½
Qualified education
Death
Unreimbursed medical expenses
Disability
Health insurance if you’re unemployed
Substantially equal periodic payments

If you withdraw money after five years

The IRS treats a withdrawal made more than five years after the first tax year in which you made any contribution (including earnings) to your Roth IRA as a qualified distribution, which is not taxable or subject to penalty as long as you satisfy one of the following conditions:

You’re at least 59 ½
You die or are disabled
You use the withdrawal to pay for a first-time home purchase

Penalties and exceptions

Withdrawals after five years other than the above are not treated as qualified distributions, and the earnings portion of the distribution is taxable. However, the withdrawal won’t be subject to a penalty if a penalty exception applies, including:

Qualified education
Unreimbursed medical expenses
Health insurance if you’re employed
Substantially equal periodic payments

Nonqualified distributions follow the same three-step order of withdrawals listed above.

PLEASE READ THE IMPORTANT DISCLOSURES BELOW

The tax implications of withdrawals from Roth IRAs can be very complex. Please consult your tax advisor and IRS Form 8608 for the proper tax treatment of Roth IRA withdrawals.

This tax information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

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