Roth IRA Withdrawal Rules

Did you know contributions to a Roth IRA may be withdrawn at any time, without penalty? It’s one of the lesser-known Roth IRA early withdrawal rules. It is also one that I do not plan to take advantage of, but knowing it is there makes maxing out Roth IRA contributions a little easier. Here’s why.

Let’s say you are still working to build a fully-funded emergency fund, but only have one month of expenses. You manage to scrape up a few thousand dollars to save near the end of the year (a bonus, an inheritance, whatever), and would like to open a Roth IRA. If you are like I was, the thought of locking that money away in a retirement account terrified me. What if I have a big emergency two months after I open my Roth, and before my emergency fund is fully funded?

Never fear. If you do have a big emergency soon after contributing to your Roth you can simply withdraw your contributions without penalty. The rules here are different from other tax-deferred retirement savings plans because the money you invest in a Roth has already been taxed. However, the earnings in your Roth IRA have not been taxed, and therefore must be left untouched, unless you meet one of a few exceptions for withdrawing earnings tax and penalty free. Here’s the language from the website, Publication 590, related to making early withdrawals of your contributions from a Roth IRA:

Are Distributions Taxable?

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).

So there you have it; straight from the horses mouth. Withdrawals of regular contributions made to your Roth IRA are not counted towards your gross income. Does knowing you can withdraw Roth IRA contributions early without penalty make you more likely to max out your Roth IRA contribution for the current tax year? It did for us. For the first time in our married lives we maxed out my Roth IRA contribution (currently $5,000), as well as my wife’s spousal IRA (another $5,000).

In the event of an emergency larger than our emergency fund could handle, that $10,000 would be available to us (assuming the market doesn’t tank again). And that is something to consider. I would not suggest using a Roth IRA as your only source of emergency funds, because chances are your investments inside the Roth are exposed to more risk than traditional emergency fund savings.

However, Roth IRA funds could certain supplement your emergency savings, or some other savings goal, such as parking money to be used for a down payment on a first home (by the way, this is one of the qualifying events for which you can withdraw Roth IRA earnings tax free, assuming the account is over five years old).

With compound interest being such a close personal finance ally, the sooner you start investing in retirement funds, the better. Remember, you cannot go back and invest in a Roth IRA for previous tax years. It’s now or never. So go ahead and set aside some money in a Roth, and try your best not to withdraw those contributions. But remember Roth IRA withdrawal rules allow withdrawal of contributions, penalty free, if you absolutely need them.


  1. I totally agree with that idea, see my Roth IRA Emergency Fund.

    But I have 1 question, that I haven’t been able to figure out, it’s an unlikely scenario, but an interesting one:

    What if I have an emergency fund, then I pull (lets say) $15,000 of my contributions out of the Roth IRA, but then gets the money back and want to put it back?

    I know if it’s within the same year, I can put it back and still contribute an extra max contributions (currently $6,000). but what if I can’t get the the money back together until 2 or 3 years? Can I still put the money back in a Roth and do the max. contribution for that current year?

    Even with the question(s) I ask above, I’m still going to do an Roth IRA Emergency Fund, but it’s a question that keeps nagging at me…

    If you or anyone know the answer, I would greatly appreciate it!

  2. Don, the IRS will not allow you to put it back. I took 100K (contributions)out of my wife’s and my ROTH IRAs to buy out retirement. It was an advantage for me to retire 12 years earlier than the earliest social security retirement age. But I cannot take my retirement income and use it to pay back into the Roth IRAs. So, don’t fund the emergency fund with Roth contributions.

  3. This is what I love about reading PFblogs, there is always something to be learned.

    Generally I do not believe in the traditional concept of emergency funds. Maybe this understanding will help convince my wife that we don’t need so much sitting in a bank doing nothing for us!

  4. I’ve always THOUGHT this was correct, but my husband’s financial advisor is telling us that if you’re under 59.5 you must withdraw Roth IRA earnings first, not contributions. My financial advisor agrees with everything you’ve said, and thinks that Roths are a great early-retirement vehicle.

    Time to get a new advisor? He’s really confused us.

  5. Nice article. There is still a lot of confusion surrounding the Roth IRA. As a tax advisor, I’ve run into these misconceptions many times, even from people who should know better.

    Stacey – It’s definitely time to find a new financial advisor. You absolutely *can* withdraw your contributions at any time. There are additional rules if the money was converted from a traditional IRA, but if you put after-tax money directly into a Roth, you can withdraw it at any time without penalty. Just make sure you keep good records regarding the transactions.


  6. Love when I read an excellent Roth IRA post!

    One thing that I might add is that if you are using your Roth IRA as a “savings account”, be sure to keep whatever portion you have earmarked for shorter term money in more conservative investments. Yes, you can pull out Roth IRA contributions at any time, but you can only pull out what the current market value is. For example, if you put $5k in your Roth IRA at the beginning of 2008 in a S&P 500 fund and wanted to pull it out, you’re not pulling out $5k (probably more like $3k due to market loss)

    @Don: You have 60 days from when you pull out contributions from your Roth IRA to put them back. After that, your out of luck. (This applies to traditional IRA’s, too).

    @Stacey: Run really fast from your financial advisor. There are many things that a financial advisor can be confused about, but a simple concept of Roth IRA contributions is not one of them.

    Here’s some things to know on the Roth IRA for 2010:

  7. How do you calculate contributions? I have been putting money into my Roth IRA for three years now and the balance is actually less than my total contributions due to market loss. Does that mean I can withdraw everything penalty-free?

    What if I put some money into my Roth IRA recently, and it went up in value, but my total Roth IRA balance is still under my total contributions? Can I still withdraw everything?

  8. Not sure if anyone is watching this article anymore, but …..

    I have been max out my wife and my Roth’s for 6 years, and actually have almost more money in them than equity in my home.

    With the real estate market they way it is, what do people think about withdrawn contributions to help with a down payment for a new house?

    The rule about first home purchase does not apply.


  9. My cousin recommended this blog and she was totally right keep up the fantastic work!

  10. Glad I found this page. Good & timely information. I rolled 28K from a traditional IRA to a Roth in 2010. Now I ‘d like to take 25k out but I’m only 57. If I understand the info presented here, there will be no penalty or tax on this disbursal. Am I correct?