Withdraw Roth IRA earnings wisely to avoid tax penalties

Who can keep up with all the Roth IRA rules? Of course, it’s best to let your account grow for retirement, but if you need funds earlier, there’s good news.

First, because you’ve already paid taxes on your Roth contributions, you can withdraw those funds at any age for any reason, tax and penalty free.

The rules are a little trickier for withdrawing earnings, which grow tax-free in a Roth. If you are 59½ or older, and your account has been open for at least five years, you can withdraw earnings for any reason, tax- and penalty-free, explains Ed Slott, a CPA in Rockville Centre and author of “Ed Slott’s 2017 Retirement Decisions Guide.”

If you’re younger than 59½ or your account does not meet the five-year rule, you can still avoid the 10 percent tax penalty on early earnings withdrawals if you use the money for certain “qualified” expenses:

• Up to $10,000 for a first-time home purchase for you, your spouse, your children or grandchildren
• Unreimbursed medical expenses for yourself, your spouse or your dependents that exceed 10 percent of your income for the year
• Higher education expenses for you, your spouse or your children or grandchildren

Roth IRA contributions are not limited by age, only by income. If you have earnings from work or self-employment, you can contribute the maximum to a Roth even after age 70½, as long as your income does not exceed $186,000 for married couples filing jointly and $118,000 for singles.