Avoid Roth Withdrawal Penalties

I opened my first Roth IRA in 1998 and have been making contributions every year since then. In 2003, I opened a Roth with another broker and started making contributions to that account instead. I'm retiring and would like to start withdrawing money from my Roths. I know you have to be at least 59� and have had the Roth for five years to withdraw money without having to pay taxes or penalties. Does the five years start when you first open the Roth IRA or is it a separate five years for each account I own? The five-year rule applies to your initial Roth contribution -- even if you end up opening other Roth accounts later. And you don't even need to have the Roth open for five full years. Actually, you must wait until four calendar years have passed after the tax year when you made your first contribution, regardless of the date within that year. For example, if you made your 1998 contribution by the tax-filing deadline -- even as late as April 15, 1999 -- the clock starts ticking on January 1, 1998. That means you could take tax- and penalty-free withdrawals in 2003. However, for the withdrawal to be tax- and penalty-free, you also have to be at least age 59�, or the distribution must be due to death or disability, or you use the money (up to $10,000) to buy a first home.

But those rules only apply to the Roth's earnings. You can withdraw your contributions at any time and for any reason, and your withdrawals are considered to be from contributions before they're counted as earnings. The contribution amount is based on your total Roth contributions, not divided by each account. So if you contributed $5,000 to the first Roth you opened and $10,000 through the years to the Roth with the second broker, you can withdraw $15,000 from either account or a combination of the two, even though you didn't actually contribute that much money to that particular account.

For more information, see Everything You Need to Know About Roth IRAs.

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