Roth IRA: Penalty on withdrawls made after 5 years?

[Guest Ishaan]

I recently opened a Roth IRA account. I know that if I take distribution, before 5 years and before I reach 59 and 1/2, I will have to pay taxes + penalty on earnings.

But if my roth account is more than 5 years old and I take distributions, then would I have to pay taxes and penalty still (before age 59 & 1/2)? I read somewhere that after 5 years, I will have to pay only taxes, but not the penalty.

I was looking for this info on IRS website, but couldn't find anything confirming or denying it.

Can you provide some info?

[John G]

I think you are confusing different issues.

If you are talking about a contributory Roth (not an IRA to Roth conversion), you can take out at any time without penalty the amounts your contributed. Taking out the earnings may or may not trigger taxes or penalties depending upon complicated circumstances.

A Roth is a great tax shelter. Rather than focusing on withdrawals, you may be better off in the long run to focus on using the Roth tax shelter to build your assets.

[Guest Ishaan]

Thanks for the reply John.

If I have to withdraw my earnings after 5 years of account establishment and before I turn 59 & 1/2 years and if I do not satisfy any of the exceptions (like first time home buyer etc. etc.) then I know that I have to pay taxes on earnings but what about penalty? Do I have to pay penalty too?

If yes, then whats the difference between withdrawing earnings - before the end of 5 year period or after 5 year period? I will have to pay taxes and penalty all the time (till I turn 59 and 1/2 years). Is this true?

Thanks

[Appleby]

See the following URL http://benefitslink.com/boards/index.php?showtopic=19386&hl