Simple Roth IRA Withdrawal Rules

Shawn | Mar 5, 2011 |

0 Comments | Rating: 0

Roth IRA withdrawal rules are a bit different than those of the traditional IRA. They are actually fairly lenient. An IRA is a type of retirement account in which money is invested in such things as mutual funds, stocks and bonds. This article will take a quick look at what a Roth IRA is, how it compares to a traditional IRA and what the withdrawal rules for it are.

The Roth IRA is a type of retirement account created in recent decades for Americans in the lower and middle classes. In order to qualify for this type of retirement account a person must fall beneath a certain yearly income. The money that goes into a Roth IRA must come from income earned in a particular line of work. There is an exception to this rule though if a person does not make enough money to fund their own account. In this case, their spouse is allowed to place money into the account. The major benefit of having a Roth IRA is that taxes are taken out before the money is deposited into the account. In this way, taxes do not have to be paid upon withdrawal this translates into increased money being saved since interest income is not taxed.

The traditional IRA has been around for quite a long time. It is also a type of retirement account. However, taxes are not taken out until the money is withdrawn. Interest income is also taxed. A person of any income level can make deposits to a traditional IRA. Withdrawals from this account can be taken after the age of fifty-nine and a half. At the age of seventy and a half, withdrawals must be taken.

Roth IRA withdrawals are quite a bit different than the type that has already been described. While the age when withdrawals may be taken is the same as that for the traditional IRA, the Roth IRA never makes it mandatory for an individual to take a withdrawal. Once again, it should be remembered that no taxes are paid on money from a Roth. Also, a Roth must have existed for at least five years before any withdrawals may be taken. There are a few instances when an individual is allowed to take withdrawals early. Some examples of this would be short-term emergency circumstances or when payment is needed for medical bills and the individual is unemployed.

Because Roth IRA withdrawal rules are so simplistic, it is an account that is well-loved for its ease of use. Many people prefer it to the traditional IRA because of the difference in taxes. However, one should remember that there are certain qualifications that must be met before a Roth can be opened.