With tax season past, we’ve pivoted to broader personal finance topics.
Q: I thought retirement accounts locked up my money until retirement. Can I ever withdraw money from a Roth IRA without taxes or penalties?
A: Surprisingly, yes! One of the lesser-known features of a Roth IRA is that your original contributions can generally be withdrawn at any time without tax or penalty.
Think of a Roth IRA as having two buckets.
Bucket 1: Your contributions. Because Roth IRA contributions are made with aftertax dollars, you can withdraw the amount you contributed at any time without additional tax or penalty.
Bucket 2: Investment earnings. The growth and earnings inside the account are subject to additional rules before they can be withdrawn tax free.
This creates flexibility.
Many people hesitate to contribute to a Roth IRA because they worry the money will be inaccessible until retirement. While retirement savings should be left invested when possible, Roth IRA contributions can provide more flexibility than many people realize.
The bottom line: A Roth IRA remains one of the most powerful retirement savings vehicles available. While the goal is usually to leave the money invested for the long term, it’s helpful to know that your original contributions might be available if life throws a curveball.
Send questions about your taxes to Vincent Hicks, a CPA based in Cambridge who has more than 20 years of experience, at vincent@hickscpasolutions.com. You can call Hicks at (859) 553-0788.
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