Is there a way to cash in a Roth IRA that is only 2 years old?

Question

I just got hit with a huge medical bill( the result of being hospitalized when I had no insurance). It will take all my savings plus what I have in my Roth to cover it. Can I cash that in? They are threatening legal action.

Answer 1

Yes you can take money out of your Roth IRA. You will pay a 10% penalty and possible income taxes as well. There is a way to avoid the 10% penalty if: "You may make withdrawals to pay for non-reimbursed medical expenses IF AND ONLY IF the expenses exceeds 7.5% of you adjusted gross income (AGI, which means your gross income after all qualifying deductions are made)."

If this exception hold true, you will owe only income tax because your Roth IRA is less than 5 years old.

Answer 2

Yes.

Any contributions that YOU have made to a Roth IRA can be withdrawn at any time. Any money that your Roth has EARNED can also be withdrawn, but you'll have to pay a penalty on it when you do your taxes next year.

There is an exception to this rule, which may affect you. If you're withdrawing it to pay for unreimbursed medical expenses that exceed 7.5% of your annual income, the penalties are waived, but you'll still owe taxes on whatever you earned.

If at all possible, limit the amount of money you withdraw to the amount that YOU contributed. Since that money was taxed already, you have access to it anytime you want without penalty. (This is one of the advantages of having a Roth vs a Traditional IRA.)

Good question! And good luck!