Craig Wear explains that you can withdraw Roth IRA contributions anytime penalty-free, but earnings are locked until 59½. If you contributed $7,000 yearly for 10 years, that $70,000 is accessible; the $50,000 in gains stays put. Conversions follow their own five-year rule.
59½
The Roth five-year rule (account must be at least five years old).
$70,000
Account value $120,000; earnings $50,000
Form 8606
Can you pull money out of a Roth IRA before you're 59 and a half? So there's a big misunderstanding about Roth IRAs. People think the money's locked up until retirement. The fact is you can withdraw your contributions but not your earnings anytime you want to, tax and penalty free. Why is that? Well, think about it. You've already paid taxes on that money. You didn't get a tax deduction when you put the money into the Roth IRA. So let's say you contributed 7,000 a year for 10 years. That's 70,000 of your money that you contributed. If your account grew to let's say it's worth 120,000, you can still pull the original 70,000 out whenever you want without penalties. The extra 50,000 in earnings is what's locked up until you're 59 and a half and your account is five years old. So if you took the money from a conversion that has its own five year, put the money into the Roth IRA. So let's say you contributed 7,000 a year for 10 years, that's 70,000 of your money that you contributed. If your account grew to let's say it's worth 120,000, you can still pull the original 70,000 out whenever you want without penalties. The extra 50,000 in earnings is what's locked up until your 59 clock 2. And whatever you do, report it properly on IRS form 8606. That's how you show what's your contribution and avoid triggering taxes.
