Roth-IRA withdrawal penalty: 10% of what?

Asked by: Sergio Lamb

To take a tax-free distribution, the money must stay in the Roth IRA for five years after the year you make the conversion. If you withdraw contributions before the five-year period is over, you might have to pay a 10% Roth IRA early withdrawal penalty. This is a penalty on the entire distribution.

Which type of IRA will you get a 10% penalty if you take out the earnings portion before 59 ½ years old?

Roth IRA

If you withdraw Roth IRA earnings before age 59½, a 10% penalty usually applies. Withdrawals before age 59½ from a traditional IRA trigger a 10% penalty tax whether you withdraw contributions or earnings.

How can I avoid 10 penalty IRA?

Avoiding the 10% Penalty On Early IRA Withdrawals

  1. Withdrawals for medical expenses. …
  2. Substantially equal periodic payments (SEPPs). …
  3. Withdrawals after death. …
  4. Withdrawals after disability. …
  5. Withdrawals for first-time home purchases (up to a lifetime limit). …
  6. Withdrawals for qualified higher education expenses.