Withdrawals from Roth IRAs

As long as five years have elapsed since the opening of a Roth account, and as long one of the following conditions holds, account holders are not required to include withdrawals or distributions from Roth IRAs in their taxable income:

  • The participant is at least 59½ years old;

  • The participant has become disabled;

  • The participant has died, and the distribution is made to the designated heirs;(1) or

  • The withdrawal is applied toward the first-time purchase of a house.

If none of those conditions are met, withdrawals in excess of contributions must be included in taxable income.

Taxable withdrawals from Roth IRAs are also subject to a penalty tax of 10 percent unless one of the following applies:

  • The distribution is in the form of a lifetime annuity;

  • The withdrawal does not exceed medical expenses in excess of 7.5 percent of AGI for the year; or

  • The withdrawal does not exceed postsecondary education expenses for the year incurred by the participant or the participant's spouse, child, or grandchild.

Unlike withdrawals from traditional IRAs, withdrawals from Roth IRAs do not become mandatory after age 70½ and the minimum distribution rules do not apply. Beginning in 2006, Roth account holders whose employers permit it will be able to roll their IRA balances over into a Roth 401(k).

1.  Heirs are not, however, required to take distributions immediately. Generally, they have five years to take the distributions, or they can receive minimum distributions each year over their remaining life expectancy. Surviving spouses may even assume ownership of the IRA and thereby become subject to the normal distribution rules.