What penalties are there for closing a Roth IRA?

Question

Ive had a roth IRA for 6 months but need to close it for the money. What penalties will there be or do I just pay tax on it

Answer 1

Tax plus 10%.

The early withdrawal penalty does not apply to distributions that:

1. Occur because of the IRA owner's disability. (This can be a very narrow definition, so if you get a severe paper cut, don't consider a Roth IRA distribution for a disability until you review IRS Code Section 72(m)(7) and IRS Publication 590.)

2. Occur because of the IRA owner's death.

3. Are a series of "substantially equal periodic payments" made over the life expectancy of the IRA owner.

4. Are used to pay for unreimbursed medical expenses that exceed 7 1/2% of adjusted gross income (AGI).

5. Are used to pay medical insurance premiums after the IRA owner has received unemployment compensation for more than 12 weeks.

6. Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).

7. Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.

8. Are used to pay back taxes because of an Internal Revenue Service levy placed against the IRA.

Answer 2

Do yourself a HUGE favour. Pretend it doesn't even exist. If it did not exist, you would still have the "need" you think you have now, and would find another way to come up with the cash. If you close your Roth today, twenty years from now you will have some other need, you'll do the math, and you will realize how much "free money" you just flushed down the toilet by cashing out your Roth.

You should not be putting money into a Roth until after you have maxed out pre-tax savings anyway (hope you have done this), and even then you should save an "emergency fund" in an interest bearing savings account before funding a Roth. Then you could use that money now instead of wanting the Roth money.

To teach yourself a lesson you should put ten dollars a week in a jar for ten weeks. Then take one $10 bill out, tear it up, and put the rest in your pocket. That's about what you are doing if you cash out your Roth!

Best wishes...

Answer 3

I had a Roth with Fidelity and they charged me $50.00. They will send you an IRS form 5498 that reports the fair market value and contributions. So the IRS will be aware of the distribution. I asked them not to withhold any taxes so they didn't. If your distribution is a Qualified Distribution then there is no tax or penalty.

Qualified Distribution:

The distribution must be made after a five-taxable-year period( which begins January 1'st of the taxable year for which the first regular contribution is made to any Roth IRA of the individual or, if earlier, January 1st of the taxable year in which the first conversion contribution is made to any Roth IRA of the individual) AND

The distribution satisfied one of the following four requirements:
..Made on or after the date on which the owner attains the age 591/2.
..Made to a beneficiary or estate of the owner on ar after the date of the owner's death;
..Is attributable to the owner being disabled; or
..For first time home purchase

If the contribution is nonqualified then contributions and conversions are not taxable but earnings are taxable and you may be penalized 10%. If your Roth is a conversion then you may pay a penalty even if there is no tax on the conversion if you took the distribution within the five-taxable-year period in which the conversion contribution was made. Sound complicated....check with an advisor at www.naifa.org

Answer 4

Since a Roth IRA has already been taxed, there is no additional tax or penalty on withdrawal of contributions. If your account had earnings, those can be taxed and a 10% penalty applied to the earnings.

If you had losses - you can take it out now and owe nothing.

Answer 5

you will need to pay taxes on the money you made plus 10% penalty.

Answer 6

Normally you will need to pay a 10% penalty on the withdrawal.
More information:

http://www.rothirainvesting.com

Hope it helps!

Monica

Answer 7

Yeah you'll need to pay tax on it.