Early withdrawls from Roth IRAs

[Guest zeroinone]

Hello.

I've read that you can withdraw cash from a Roth IRA early (i.e., long before retirement) without a tax penalty, as long as:

a) It's for a qualified purpose, such as a college education or buying a house; and

b) As long as you withdraw only cash you've contributed, without taking out money that's accumulated via interest or capital gains.

However, I've also been told that if you withdraw money in this manner, you can only take it out in increments, versus one large lump sum. Ergo, if you wanted to take out $10,000 for a downpayment on a house, you'd have to withdraw, say, $1,000 a year for 10 years.

All that is a long way of saying I'm looking for information that can verify the truthfulness, or lack thereof, of the foregoing. If anybody knows of any articles on the RothIRA.com site, or elsewhere, I'd love to find out about them.

[BPickerCPA]

1) You can take your annual contributions out at any time without tax and without penalty, for any purpose.

2) If you withdraw income prior to age 59½ you will owe income tax except if the account is over 5 years old AND it's on account of death, disability or first time home purchase (lifetime limit of $10K). Other withdrawals will be subject to income tax but not 10% early withdrawal tax IF it meets an exception to that tax. Otherwise it's subject to that tax also.

[John G]

The Roth is a great tax shelter. Very flexible. No specific termination date or payout schedule. Plus attractive inheritance options.

Taking $$ out early defeats these advantages. Just because something is an option does not mean it is smart to implement. Before ever considering withdrawals, consider other options such as intra-family financing, home equity loan, margin equity loan, delayed purchase, etc. I sure would sit on my decision for a few months before pulling the trigger.

I was seduced by the ten year income average option in the mid 1980s for a corporate pension/profit sharing plan I was leaving. Now, looking back, paying the taxes and taking the money out of the tax shelter was one of the top three financial mistakes I have ever made. Been there, done that... albeit in a slightly different context... so I hope readers will think long and hard about "desheltering" assets.