When Can You Cash Out a Roth IRA?

A Roth IRA is an Individual Retirement Account designed for the benefit of the working class. Investing in Roth IRA is a wonderful way of creating wealth to take care of your retirement years. There can be situations when you may want to take money out of your Roth IRA. It is important to know when you can cash out a Roth IRA.

When cashing out a Roth IRA, there are a couple of things that you may need to consider. In fact there are two pools of money which is involved. One, the actual money that is invested by the individual and two, the money that is accrued by way of interest and earnings on that investment. For instance, if a person makes a contribution of $5000 every year into a Roth IRA for five years, then his contribution will be $25000. Let us assume that the money grew to $35000 in these five years. Then, his contribution would be $25000 and earnings would be $10000. You must understand that the rules for cashing out are different for each pool.

Since tax is already paid on the Roth IRA funds, you can withdraw your contribution whenever you want to. There are no taxes or penalties that you have to pay for making the withdrawals. For instance, if you have made a contribution of $25000 over five years and that money has grown to $35000, then you can withdraw $25000 whenever you want to without any strings attached to it. However, if you want to withdraw the earnings of $10000, a different set of rules are applicable.

The eligibility criteria for cashing out on earnings without paying any taxes is that the individual must be above the age of fifty nine and a half years and above. For those cashing out before the age of 59 1/2 years, a tax penalty of 10% is charged. Lastly, cashing out a Roth IRA should be the last resort. It is suggested that you allow the fund to grow and create wealth for you.