Early Withdrawal

Question: Is there a penalty for withdrawing from a Roth IRA to pay a student loan?

I know there is usually a penalty for early withdrawal but isn’t that waived for education expenses?

Answer: There is no penalty exception for withdrawing funds to pay for a student loan.

That being said, you would be able to withdraw a portion of your Roth IRA savings without paying taxes or penalties. With a ROTH, you can withdraw, without penalty, up to the dollar amount that you have contributed to the plan. Any earnings would be subject to taxes and penalties if withdrawn.

Example:
Let’s say you contributed $20,000 over the years to a ROTH. That $20,000 has grown to $25,000. You would be able to withdraw up to $20,000 penalty free… but if you were to withdraw more than the $20,000, taxes + penalties would apply.

Hope this helps!

Self Directed IRA Part 6 Private Lending

Question: IRA withdrawal for education?

Is there any difference between Traditional and Roth IRA when it comes to avoiding 10% withdrawal penalty for qualified higher education expense

Answer: You will still pay taxes on a traditional IRA withdrawal for eduction. There is no 10% penalty but there are still taxes.

With a Roth, you can always take the contributions out tax and penalty free. The taxes kick in if you touch the earnings in the Roth.

Investing Early For Retirement

Question: early withdrawal penalty from Roth IRA?

A couple years back i took $4000 from my savings and put it into a roth IRA. I hit a rough stretch this year and needed the money back, so i withdrew the money early from the Roth. When i withdrew, it was up to $4570. My question is…….. what do i have to pay a penalty or income tax on? Just the $570 i made while the money was invested, or on the whole amount? I don’t meet any exemptions.

Answer: Dear Charlie: Seems like you are getting some conflicting info. Roth contributions are after tax contributions and can be with drawn at anytime tax and penalty free (10 minutes or 10 years). Your earnings are the other part of your question ($570) and have special rules. Your earnings must satisfy two requirements (1) age 59 1/2 and (2) 5 years in the account. Earnings when withdrawn are taxed and if they do not meet the test above 1&2 they will have the 10% penalty.

See IRS Pub. 17 page 118-130 and IRS Pub 590

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more.
Errol Quinn Enrolled Agent Master Tax Advisor

Roth IRA Conversion 2010