Roth IRA Penalty

[danintherc]

In 2017 I contributed to a Roth IRA for tax year 2016. I want to withdraw it when it will not receive the 10% penalty. I'm now 60 years of age as of Aug 2020. When will the penalty not apply?

[Critter-3]

Once you reach the age of 59.5 the penalty is gone. 

[dmertz]

However, assuming that the contribution for 2016 was your first Roth IRA contribution, if you withdraw any investment gains, which come out last, prior to 2021 when your Roth IRA(s) become qualified because you are over age 59½ and it will be more than 5 years after the beginning of 2016, the distributed gains will be taxable as ordinary income even though they are not subject to any early-distribution penalty.  Any distribution that you receive prior to 2021 must be reported on Form 8606 to determine the taxable amount.

[Opus 17 · Accepted solution]

A Roth IRA withdrawal that is not qualified may be subject to regular income tax.  A withdrawal is qualified if it is made after age 59-1/2 AND after 5 years after the first Roth contribution.

The exact wording is "It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit."

That means that, for a contribution made for taxable year 2016, the 5 year period is 2016-2020.

Because you are 60, you won't pay the extra 10% penalty for early withdrawal.  You can always withdraw your contributions at any time without paying income tax or a penalty.  If you withdraw earnings in 2020, they will be subject to regular income tax because you don't meet the 5 year test, but if you wait to 2021 to withdraw your earnings, they will be tax-free.