Can I withdraw from my Roth IRA penalty free before age 59?

Te_ariki
Te_ariki Member Posts: 24 Level 4
edited January 30 in Filing my taxes

I received some advice to use my Roth IRA as a savings account (I'm not retired) so that my funds can be invested and not sitting in the bank, as long as I don't withdraw any growth that those funds had. This past year I needed a chuck to make a larger purchase and took it from my Roth. I took out an amount less than I have contributed to the account.

Now I'm getting a 1099-R from my Roth brokerage and in box 2a (taxable amount) the box is blank, and in box 2b the 'taxable amount not determined' is checked.

Does that mean this money won't be taxed/affect my AGI? Or are there other things it looks at to determine how much will be taxed or increase my AGI?

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Answers

  • Henry
    Henry FreeTaxUSA Agent Posts: 154 image

    Hi Te_ariki, if the amount you withdrew from your Roth IRA was less than or equal to your total Roth IRA contributions, then it is generally not taxable, not included in AGI, and not subject to the 10% early withdrawal penalty.

    However, the IRS determines this using your Roth IRA contribution history, not just the blank box 2a on the 1099-R. The IRS looks at whether your Roth distribution is a:

    1. Regular contribution withdrawal
    2. Conversion withdrawal
    3. Earnings withdrawal

    1) Regular Roth contributions: your direct Roth IRA contributions can generally be withdrawn any time, tax-free and penalty-free.

    2) Roth conversions: if any of the money in the account came from a conversion from a traditional IRA, different 5-year rules may apply. Conversions withdrawn too soon can create taxable/penalty consequences in some cases.

    3) Earnings: earnings are tax-free only if the distribution is qualified. Usually that means:

    • you’re 59½ or older, and
    • it’s been at least 5 years since your first Roth IRA contribution

    If not, earnings can be taxable and possibly penalized.

    When you enter your 1099-R information in the software, you'll be prompted to provide more information about your basis in the Roth IRA to determine how much (if any) of the distribution is taxable.

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