Liz Weston

Dear Liz: In an article that ran in my local newspaper, you stated that, “Roths allow you to withdraw the amount you’ve contributed at any time without triggering income taxes or penalties.” I suggest that you review Pub. 590-B, where you will be reminded that, with some exceptions, withdrawals from a Roth IRA within the first five years will result in a 10% penalty.

Answer: The five-year rule applies only to earnings, not contributions. The IRS publication you reference states on page 30, “You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).” There’s a helpful diagram on page 32 that explains when a distribution is made within five years of the year in which the Roth is opened, the “portion of the distribution allocable to earnings may be subject to tax and it may be subject to the 10% additional tax.” (Emphases added.)

Retirement distribution rules can be complex and it’s easy to make a mistake. But the fact that people can withdraw their Roth contributions at any time without taxes or penalties is not some obscure facet of these retirement accounts. It’s a central feature.

Unlike regular IRAs, where withdrawals are taxed proportionate to their earnings, a withdrawal from a Roth IRA is deemed to be from nondeductible contributions first. People have to withdraw more than they contributed to face a tax bill or penalties. If they’re over 59½ and the account has been open five years, their withdrawal of earnings will be tax-free and penalty-free.