Roth Individual Retirement Account or IRA is one of the plans that help people have a better option when it comes to choosing a good retirement plan. It is quite similar in structure to the traditional IRA but it’s more flexible and it offers better benefits than its other counterparts. Perhaps one of its advantages is that withdrawing the principal contribution will not include any penalty or taxes. This is the most vital of all the Roth IRA withdrawal rules and it is also the least known. But people need to be knowledgeable of this so they can have the best benefits of the retirement plan they signed up for.
If by chance that any of the withdrawal rules is not followed, or the owner had withdrawn some of the funds before the allowed time, Roth IRA penalty will be applicable. This would be specific to the situation and at times, there are possible exemptions to these rules. Specifically, the penalty will be applied if the owner will try to withdraw the earnings of the principal contribution before he reaches the age of 59.5. When you reach this age, then you can certainly avail of your contribution and its earnings, without any taxes. Also keep in mind that Roth IRA has a five year tax holding period. This means that the principal contribution should not be withdrawn within five years of opening the account. This rule applies regardless of age; the owner may reach sixty but if the account had not reached the tax holding period, then penalties will also ensue.
Undoubtedly, choosing Roth IRA as your retirement plan is a good choice. The strict rules regarding withdrawal and the penalties will ensure that people won’t be making withdrawals prior to their retirement and thus the funds will not be depleted in the process. Leaving the funds intact up until your requirement is a good decision as it will allow you to lead an independent life after your retirement.
- What is a Roth IRA and how can it Benefit You? (2009tax.org)