Contributions can be withdrawn from a Roth IRA without any tax penalty?

Question

I am aware of how unwise it is to take money out of your retirement savings. But if I encountered a horrible situation and badly needed $10,000, is it true that I could withdraw $10k from my Roth IRA without any tax penalty as long as I had made at least $10k in contributions?

This is my understanding of what I have read so far, and I want to do a reality check. Because if this is true, I should be putting my savings for "very unlikely emergencies" in my Roth IRA, not a savings account.

Thanks for advice!

Answer 1

Yes, you can take contributions out of a Roth IRA penalty free, but there's a catch. The contributions have to have been in the accout for 5 years.

Answer 2

Contributions are always fully liquid in a Roth. If you contribute $4000 one week, you could take it out the next week without penalty. The earnings cannot be touched until 59.5 without penalty. However, you can only put the maximum allowable amount in each year. You can't put the $1000 back in after it has been withdrawn if you have already put in $4000 for the year.

Answer 3

Here's an overview of the rules:
http://www.smartmoney.com/retirement/ira/index.cfm?story=supertable

It's my understanding that you can only take the money out penalty-free under certain, specific circumstances (that are listed on the link above, including educational expenses, first-time home purchase, and/or to pay for health expenses over 7.5% of your adjusted gross income.)

Although, if you check out the last paragraph of the article, it does appear you can take out any amount of money for as long as 60 days, providing the money is returned to the account within that 60 days.