This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Tuesday, October 14, 2014

Using Money From Your Roth, What I Learned

Posted By Paul

Hi Everyone,

I don't know if any of you out there are aware of it, but currently the rules with Roth IRA's are very interesting in that you are allowed to withdraw CONTRIBUTION money from your Roth at any time for any reason without penalty or tax implication.

This makes sense since the money you contributed to your Roth was already taxed as income, but a question I had was: Assuming I want this money, how do I get it and how do I know how much I can withdraw?

So the first questions of how you get it, is actually pretty easy.  When I looked into it it seems like most companies that offer Roth IRA's have a pretty easy way to withdraw money.  With my provider I can actually do the whole thing online and electronically transfer the money to my checking account and have it in a few days (really nice!).

So now for the question of how do you figure out how much you can withdraw?  The while idea is that if I open a Roth IRA and over it's lifetime I've contributed a total of $1000 then today if my Roth is worth a total of say, $1200 I can withdraw that $1000 for any reason without penalty, but if I take out more than the $1000 I get hit with all kinds of penalties (unless of course I've hit retirement age and meet other requirements).

If you remember that you contributed $100 a year and you have had the Roth for 10 years that it might be easy to remember that you can take out $1000, but if you're like me and the amount you contributed to your Roth has changed over the years then the total amount you've contributed can be a tricky (but important) question.

So how do you get the answer?  Well if you have had your Roth with the same company for its entire lifetime you can probably just call them and then can look up your contribution history.

But if you're like me and you MOVED your Roth at some point then your current company will only know the contributions you've made since the Roth has been with them.  If you contact your old company and they can help you then great, but more likely you will have to go through your old tax documents and hopefully find your old 5498 tax forms or your old Roth account statements to track down your contributions.  That's what I ended up having to do, and it was a big hassle.

My advice?  Start a google doc or something like that and just enter your contributions for each year, that way if you ever do want to withdraw money early from your Roth IRA you'll know exactly how much you can safely take out.