Son has had Target Retirement Funds in Roth for 15 years. He no longer works at company but has been allowed to contribute $6000 per year. He is 45 years old, self employed. If he needs to take out any money before he is 59, will there be a penalty or any expense?
Roth IRA withdrawal guidelines
Before making a Roth IRA withdrawal, keep in mind the following rules to avoid a potential 10% early withdrawal penalty:
Withdrawals must be taken after age 59½.
Withdrawals must be taken after a five-year holding period.
Funds in a Roth IRA consist of contributions and earnings. You may withdraw from the contributions with no fee, any age. Less than 59 1/2 withdrawals for the earnings will hit you with a 10% fee.
Money is distributed from a Roth IRA in an ordered sequence:
First to be distributed is Contributions, always tax and penalty free.
Second to be distributed is Conversions. Converted money is distributed tax free. Converted money will be subject to a penalty during the first 5 years after its conversion. Each conversion has it’s own 5 year period.
Last to be distributed is gains. Gains may be be taxable and may be subject to a 10% penalty.
See IRS Pub 590B,Page 32, figure 2-1 (https://www.irs.gov/pub/irs-pdf/p590b.pdf)
@Genie_Hagar I think the record-holding responsibility is up to your son, in order that he not withdraw more than his contributions.
That said, I would 100% not do that. It would be like eating your own seed corn. People who make a habit of draining their retirement assets before retirement have a huge risk of ending up destitute in retirement.
He need to cut back / do without or find more income somewhere out there.