dmertz, a little clarification to your response; a distribution from your Roth IRA is totally tax free If it is a Qualified Distribution. To be considered a qualified distribution, you must have held a Roth IRA for five years AND the distribution is:
- Made on or after the date the taxpayer reaches age 59 1/2, or
- Made due to the taxpayer's death or disability, or
- For a qualified first-time home purchase ($10,000 lifetime limit).
So merely holding a Roth IRA for 5 or more years does NOT make the entire amount available to be withdrawn tax free, if you don't meet the rules listed above. For example, a person (not disabled, not a first time home buyer) who is under 59 1/2 but held the Roth IRA for over 5 years and takes a distribution is considered to have made a nonqualified distribution, and may have to pay taxes and the 10% early withdrawal penalty on the taxable amount of the distribution (unless an exception to the penalty applies). Of course, you have to apply the ordering rules to determine what part (if any) of the distribution is considered a taxable amount. Generally speaking, the ordering rules state that distributions come first from regular contributions (tax and penalty free and can be withdrawn at any time), then from conversions and rollover contributions, then from earnings.
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