Can I withdraw money rolled over from a Roth 401(k) to a Roth IRA account without penalty and taxes if I’m under 59 ½?

by Lisa M. Minniti-Soska, CPA | Nov 08, 2018

I had a Roth 401(k) account that started in October 2010 and ended in February 2015. I rolled over this Roth 401(k) into a Roth IRA account that I opened in 2016. I am under 59 1/2 years old. I am wondering if I can withdraw the money from the Roth IRA account and have it be penalty- and tax-free? I've read that "contributions" can be withdrawn penalty and tax free, but "earnings" could still be subjected to the 10 percent penalty and income tax.

Whether or not your Roth IRA distribution is taxed depends on a few factors. In general, you can withdraw your contributions at any time without tax or penalty. Where it gets tricky is if your withdrawal digs into the account’s investment earnings. Other factors you need to consider are:

  • How old you are when the distribution is made
  • How long the funds have been in the Roth IRA
  • The purpose of the distribution

Withdrawals of contributions made after age 59½ are considered normal “qualified distributions” and are not taxed. You paid tax on that money when you first contributed to the Roth IRA. Distributions that include earnings are free of tax, too; however, the Roth IRA must have been established for at least five years before they can be withdrawn.

If the withdrawal is made before age 59½ and doesn’t exceed the amount that has been contributed to the Roth IRA over the years, then no income tax is charged. As mentioned earlier, withdrawals of contributions are not taxable.

If the withdrawal is made before age 59½ and includes earnings, then you may have to pay both income tax and a 10 percent penalty. There are certain situations under which the IRS will allow you to withdraw without penalty, which include distributions made toward the purchase of a first home, because you became disabled, or distributions made to your beneficiary or estate after your death.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Lisa M. Minniti-Soska, CPA, is a partner in the real estate group of Mazars USA LLP in Fort Washington, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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