Liquidating a roth ira

by  |  12-Aug-2015 03:20

Withdrawals of contributions are always tax-free and penalty-free.Withdrawals of both contributions and earnings received from a traditional IRA before age 59½ may not be subject to the 10% federal penalty tax if they occur because: Most owners of traditional IRAs and employer-sponsored retirement plan accounts (like 401(k)s and 403(b)s) must withdraw part of their tax-deferred savings each year, starting at age 70½.

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If you haven’t done that, you can dig up IRS Form 5498, which is what the IRA provider uses to report contributions to the IRS.

You should be able to locate that within your account information online (most brokerages will keep seven to 10 years’ worth of documentation available). You can also tap the earnings from your Roth IRA investments, but these are subject to more restrictions.

If the account is at least five years old, you’re allowed to put up to $10,000 in earnings from your Roth IRA toward a first-time home purchase, without tax or penalty, as long as it is used within 120 days of withdrawal.

(You’re also allowed to use that amount from a traditional IRA, with no account age requirement, though you will pay taxes on the distribution from that type of account.) Combine your contributions with $10,000 of earnings, and you could have access to a considerable amount of money — especially if you and your spouse both have a Roth IRA, because these rules apply to each of you.

Temporarily cutting back contributions is, in many cases, a better option than pulling money out.

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