Define Roth IRA

• A Roth IRA is a retirement account opened, managed and controlled by the account owner. Taxes are paid on the funds before the individual contributes them to the account. There are income guidelines for contributing to a Roth. Single filers and couples earning over a specified annual gross income, or AGI, may not contribute. Individuals can roll a traditional IRA over to a Roth IRA. Roth IRA funds grow untaxed and withdrawals are not taxed if completed according to IRS guidelines.
  
  

The Five-Year Rule

• Penalty-free Roth IRA withdrawals must be made at least five years from the date the account was opened and funded. An individual is permitted to take out the taxed contributions within the five-year time span. Taxes and penalties are due on untaxed earnings pulled out.
  
  

Educational Expenses

• Educational expenses are an allowable cause for a no-penalty withdrawal. The funds can be used for post-secondary education at an accredited institution for the account owner or his spouse, children or grandchildren. The funds can cover tuition, books and supplies, and room and board for students enrolled at least half-time. Expenses for special-needs students are also permitted.
  
  

First-Time Home Buyer Exemption

• An individual can withdraw up to $10,000 for the purchase of a first home. The funds can be used for the account owner or her spouse, children, grandchildren or parents. A first-time home buyer is defined as the account owner or spouse who did not own a principal residence for at least the previous two years.
  
  

Additional Early Withdrawal Exemptions

• There are additional reasons early withdrawals would not be subject to taxes and penalties. They include payment of unreimbursed medical expenses, medical insurance payments when unemployed, and disability. An individual can withdraw funds over a period of time in equal installments. Payments to beneficiaries following the death of the account owner are not subject to taxes and penalties.
  
  

Normal Distributions

• The IRS set 59 ½ as the age individuals can begin to pull money out of their IRAs without penalty. Normal Roth IRA distributions are not subject to federal taxes. There are no specific withdrawal requirements for Roth IRAs. Individuals may take out any amount of money at any time after the age of 59 ½ without penalty or tax liabilities.