How To Cashing In Roth IRA  

      A Roth IRA is perfect for a person who believes he will have a lot of income later in his life and want to use a Roth IRA to save the income from taxation as much as possible. Any contribution to a Roth IRA is done after taxes so one cannot avail any tax deduction.

      However, the earnings from the plan are exempt from tax when the money is withdrawn after you attain the age of 59 1/2 years.

      You can have multiple IRAs but when it comes to withdrawal, the IRS takes all of as just one account. In addition, as per the rules and guidelines stipulated by the IRS, cashing in a Roth IRA must be done in a specific order. This order has to be followed immaterial which Roth IRA you use to cash out. The order for cashing in a Roth IRA is as follows:

  1. From non-taxable annual contributions to a Roth IRA
  2. From conversion contributions, on a first-in, first-out (FIFO) basis
  3. From earnings

      If you withdraw money from a Roth IRA before you reach the age of 59 1/2 years, you will have to a 10 percent early withdrawal penalty. However, the early withdrawal penalty can be waived in certain cases. The exceptions are listed below:

  • The account becomes disabled
  • The account owner dies
  • The account owner makes a series of substantially equal periodic payment over his life expectancy
  • The money is required to pay unreimbursed medical expenses that are more that 7.5 percent of the adjusted gross income
  • The money is required to pay premiums of medical insurance after the account owner has received unemployment compensation for more than 12 weeks
  • The account owner is a first-time home buyer and wants money to purchase a home
  • The IRA owner or his eligible family members want to pursue higher education
  • The money is being used to repay taxes as the IRS levied taxes against the account

 

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