Not all Roth IRA withdrawals are tax-free.
Even worse, some can be socked with a 10 percent early withdrawal penalty tax, and this can happen even when there’s no income tax hit.
Any withdrawals from any of your Roth accounts are federal-income-tax-free qualified withdrawals if you, as a Roth IRA owner,
• are age 59 1/2 or older, and
• have had at least one Roth IRA open for over five years.
Such withdrawals are usually state-income-tax-free too. Good!
You must pass both the age and the five-year tests to have a qualified withdrawal.
The five-year period for determining whether your withdrawals are qualified starts on January 1 of the first tax year for which you make a Roth contribution. It can be a regular annual contribution or a conversion contribution.
A non-qualified withdrawal is potentially subject to both federal income tax and the 10 percent early withdrawal penalty tax. The only exceptions are
• when the special first-time home purchase provision applies, or
• when the account owner (that would be you) is disabled or dead.
If you have a Roth and want to take a non-qualified withdrawal, make sure you know the tax consequences.