Principal Distributions
You fund a Roth IRA with after-tax contributions. You can take out the money that you specifically put into the account at any time after putting it into your Roth IRA. When you take this out of your account, you do not have to pay any taxes or penalties on the amount of the withdrawal. You have already paid taxes on the money, so the Internal Revenue Service does not care if you take back that particular money.
Retirement Distributions
The purpose of the Roth IRA is to provide you with a way to take money once you retire. The money you take out will not be taxed because you have already paid taxes on the money before you put it into the account. You also do not have to pay taxes on the earnings from your account. Once you reach the age of 59 1/2 or when five years have passed from the time you open the account, you can start taking distributions from the principal and investment earnings in your Roth IRA without paying any taxes or penalties. For example, if you open the account at the age of 30, you can start taking distributions at the age of 59 1/2. If you open the account at the age of 58, you have to wait until you turn 63 before you can take distributions.
Penalty
While you can take out the principal that you contribute to your account at any time, you cannot take the money from investment earnings until you reach the age of 59 1/2. If you take out this money from your Roth IRA, you will have to pay a 10 percent early distribution penalty. For example, if you have contributed $5,000 to your Roth IRA and it has grown to a value of $5,500 thanks to investments, you could take out the $5,000 without issue. If you take out the full $5,500, you have to pay a 10 percent penalty on the extra $500 in investment returns.
Exceptions
As a general rule, you cannot take all of the money out of your Roth IRA without penalty. However, some exceptions allow you to take money without paying the early distribution penalty. For instance, if you take money out to pay for higher education expenses, you can avoid the penalty. You can also take up to $10,000 out of your Roth IRA to pay for your first home as long as it is your primary residence.