Dessertrice13,
Yes, unfortunately, if you do not meet the age and time held requirements you will get a 10% penalty on the distribution. You have to have had the Roth for at least 5 years and be 59 1/2 years to avoid the early distribution penalty.
TaxLadySusan
@dessertrice13 it is a little more complex than @TaxLadySusan stated. There are ways to avoid toe 10% early withdrawl penalty even if you are not 59.5 years old.
yes, if you are over 59.5 and any Roth account you own has been open for 5 calendar years, there is no tax and there is no 10% penalty.
But if that isn't true (i.e. you are under 59.5 year old OR the Roth has been open for less than 5 calendar years, there can be tax and there can be 10% penalties!
There are 3 flavors of withdrawals, and the IRS presumes them to occur in this order:
1) Contribution dollars -
2) Conversions dollars (these are dollars that came from a TRAD IRA) -
3) earnings dollars
if you are over 59.5 and the Roth has been open for less than 5 calendar years, the earnings are taxable and there is no 10% penalty. Everything else is tax free and penalty free.
if you are under 59.5 and the Roth has been open for more than 5 calendar years,
Contributions - no tax and no 10% penalties
Conversions - no tax but 10% penalties apply to any conversion that occured in the last 5 years
Earning - tax and 10% penalties apply
if you are under 59.5 years old and the Roth has been open for less than 5 calendar years,.
Contributions - no tax and no penalties
Conversions - no tax but 10% penalties apply
Earning - tax and 10% penalties apply
there are exceptions that get you out of the 10% penalties.... but I won't go there.
So if the money you withdrew is less than your contribution dollars, there is no tax and no 10% penalties (regardless of your age) , because the IRS presumes the Contribution dollars are all distributed first and therefore none of the Conversion dollars or earnings were withdrawn.....
