Withdrawl contributions (roth IRA)

[Guest bigred1612]

I have heard from multiple sources that cash contributions to an Roth IRA can be withdrawn at any time for any reason, not matter what, hands down, black and white, no penalty, no additional tax. For example, if today I put $1000 into the Roth IRA and tomorrow I have an emergency I can remove the same $1000 with out any other cost to doing so? Is this true? It seems my financial institution was unsure of this point... they kept talking about 5 year minimum this and qualified withdrawl that (home purchase, etc.). My understanding is those criteria are only on the earnings, right? Contributions are "liquid," yes? If withdrawn do they ever have to be paid back? Please set me straight if I am somehow confused.

Another possibility I guess is that my bank may have a different policy... is this possible? I thought the rules are universal? Could the bank have some fee for doing this?

[saabraa]

The custodian/trustee could have fees for withdrawing/closing the account.

Contributions and earnings are liquid. Once withdrawn you don't have to pay anything back.

In general, there will never be any tax when withdrawing your own contributions.

The glitch comes in if you have conversions. That is, you had money in a traditional Ira and then rolled it to a Roth, which requires payment of regular tax but not the additional 10% income tax for early distribution (referred to by many as a penalty tax). The glitch saga continues if you withdraw any of the converted contributions sooner than 5 years from when you first opened a Roth. At this point, there could be a 10% tax, even though we're talking about after tax converted money that's not subject to regular income tax anymore. There are exceptions to the 10% tax---the same list as for a traditional Ira, such as age 59 1/2, certain medical expenses, purchase of "first home," and a couple others.

Your money is considered to exit all your Roths aggregated and in the following order: First comes your regular contributions; when you've used them up then comes the converted amount. Finally we get to the earnings, which could potentially be subject to all the taxes.

Further details are in the regulations, which are written in handy question and answer format. You can google 1.408A-6 and look at the first hit.

[Guest bigred1612]

So... in general... no "conversions" this is a brand new account. If this were my situation:

Total IRA = 20000

contributions = 10000

conversions = 8000

earnings = 2000

I can remove 10000 for no reason with no waiting period and no tax or additional tax or penalty or whatever you want to call it. The money is mine today not mine in 40 years, unlike a 401k or social security etc.

(this is a very simple question, I know there are different situations but please confirm so that I am 100% certain)

If my bank does indeed have fees, do you know of an institution w/o fees for withdrawls of this nature or with negligible fees?

[saabraa]

You're correct; the $10,000 can be withdrawn without taxes or penalty.

I don't know about the negligible fee part; it's probably out there somewhere.

[John G]

When dealing with a large institution.... (1) request a copy of the rules governing the account. Yes, the custodian can charge fees for lots of stuff and your primary recourse is to leave if you don't like it. (2) Talk not to the general clerks but the IRA dept (back office dpt at HDQ). (3) If you custodian treats you poorly, transfer your assets to someone else. (4) All this is hypothetical I hope.... the whole point of a great tax shelter is to keep your money sheltered for as long as possible.