Tax Consequences of a Roth IRA Withdrawal

Making an IRA withdrawal early can result in taxes and penalties that must be paid. With a Roth IRA, it depends on whether the money is qualified or non-qualified. Qualified means that the distribution is used for certain expenses the IRS has allowed. Non-qualified  includes all other reasons for early withdrawals. If you are under the age of fifty-nine and a half, then these would be considered early withdrawals.

Qualified Distributions

Qualified Distributions will have no taxes or penalties applied. These include distributions made in order to buy a home or to pay for college or medical expenses or because the account holder has become permanently disabled and unable to work. Withdrawing money to roll over to another account is also a qualified distribution. All of these are allowed with no penalties.

Non-Qualified Distribution

If you are withdrawing early from your Roth and your distribution does not meet the above criteria, then you will pay taxes. It will be included in your taxable income for the year. On top of that, you will pay a 10 percent penalty, which is called an excise tax. These expenses will be deducted from your distribution, or you will have to pay them when you file your federal tax return.