I just learned from a Fidelity rep that withdrawals from my Roth IRA account are subject to 10% penalty if they are made earlier than 5 years since the date my Roth IRA account was opened. I am extremely confused. I have read in several books that if I open a Roth IRA account and contribute cash, I will always be able to withdraw the original amount I contributed with no tax or penalty. The earnings must stay in the account because they ARE subject to tax and penalty. I just read IRS Publication 590 and it talks about "conversion" contributions and qualified distributions, etc. I have no clue what they mean by all that. It seems that any withdrawal taken from an IRA account before 5 year period ends AND before one is 59.5 years old, disabled, etc. IS subject to "10% additional tax".

So which is it? Can original CASH contributions made to a Roth IRA account be withdrawn at any time for any reason as if from a saving account without any tax or penalty? Or ARE they subject to 10% penalty?

OK, I went through Worksheet 2-3 in IRS Publication (page 62). It seems that as long as your distribution is less than or equal to the cash that was contributed to the Roth IRA account, the "taxable part of your distribution" comes out to 0.

Did I understand publication 590 correctly? Thanks!

You're right. A normal person such as yourself says "I can withdraw my contributions tax-free" but govspeak is "You pay tax plus a penalty on the taxable amount. The taxable amount is [blah-blah that comes to $0]."

Thank you very much. IRS wording is so convoluted and illogical. It's like they speak another language...

And.... it is not uncommon for the basic staff and front desk clerks at any organization to get it 1/2 right. Its a complicated subject with a lot of subtle distinctions.

There is a difference between "conversion" Roths and contributory Roths. A "conversion" is when you flip an existing IRA over to a Roth and pay taxes on the amount moved. Fidelity may have said it wrong, or your ears may not have realized the differences. Same goes with "withdrawing", "contributions" and "earnings". It is not hard to have one party talking about one circumstance and the other talking about something very different.

If you are talking about a contributory Roth, you can withdraw you contributions at any time without penalty. There are also first time home buyer and education exceptions. That is a lot of flexibility, and it gets better when you reach the minimum age and can completely control how much and when you take out funds.

BUT... a more fundamental question is why do you want to take funds out of your Roth. The basic value of a tax shelter is using it to shelter assets.

Have you considered other sources of money? You have low interest signature loans, home equity loans, home refinancing, and even short term teaser credit cards with zero interest for 4-6 months. Some folks also have internal family sources - "hey ma! I can pay you 6%, which is a lot better than 3.5% you are getting at the bank!"

John, thanks for your clear and comprehensive reply, as always.

The reason I am concerned about being able to withdraw without penalty is that presently I am treating my 2006 Roth IRA as an emergency fund. I was in the process of building up my emergency fund when it occured to me that 2006 would be my last chance to contribute to a Roth IRA due to income limit rules. I wanted to do it before April 15 deadline, which meant using funds from my emergency fund. So now my and my wife's Roth IRA are funded for 2006 and are part of our short-term emergency fund. Once I am able to bring my emergency fund back up to the appropriate level, I will start treating our Roth IRAs as long-term retirement saving.

In addition, it is nice to earn tax-free interest on my money. My emergecy fund is earning a taxable 5% in a savings account, while my Roth IRA is earning tax-free 5% in a money markey account, even if only temporarily. Still nice to think that even a small fry like me can shelter a tiny amount of income from the system I think that many people who cannot afford to set aside money in a Roth IRA should at least use this as a way to keep their interest income tax-free. They can do it by treating their Roth IRA as a saving account, since contributions can be withdrawn at any time. Plus, many low income people could get a tax credit for contributing to their Roth IRA, if I understand the rules correctly. It could be a material gain for some low income folks.