What Is an Early Roth IRA Distribution?

An early Roth Individual Retirement Account (IRA) distribution is a withdrawal a person takes before he reaches the standard retirement age for these plans, which is 59.5. Once a person has reached this age, he can take distributions without facing a 10-percent penalty. There are some exceptions to the rule regarding early withdrawals penalties, however. A person might be allowed to take a penalty-free early Roth IRA distribution in the event that he needs the money to purchase a home, is disabled, or needs to meet educational expenses. Additionally, there are some other special early distribution situations that allow a person to avoid paying penalties.

Like other retirement plans, Roth IRAs have rules that govern when a person can begin to take distributions, which are withdrawals of money from the account. Usually, a person can begin to take withdrawals once he is 59.5 years of age. In the event an account holder withdraws money before he reaches this age, he is taking an early Roth IRA distribution. Unfortunately, withdrawing money early often has financial consequences — a person who takes an early Roth IRA distribution is usually subject to paying a tax penalty of 10 percent on his money.

Roth IRA distributions have two categories: qualified and unqualified. Qualified distributions include withdrawing the money after the appropriate retirement age or meeting criteria that allow for a penalty-free withdrawal. Unqualified distributions are those that result in the 10-percent penalty.

If an individual wants to take an early Roth IRA distribution, there are qualified distribution options that avoid the 10-percent penalty. For example, if he uses the money to purchase a home, pay for college, or pay for medical expenses that account for more than 7.5 percent of his income, he can avoid the penalty. He can also avoid the penalty if he is disabled. In some cases, he might be able to avoid the penalty by completing a rollover of his funds to another eligible type of retirement account.

It is also important to understand the five-year rule when one is considering taking a Roth IRA withdrawal. An individual can withdraw earnings from this type of account as long as he has held the account for at least five tax years. Additionally, a beneficiary of a person who held an Roth IRA may wonder whether he will face penalties if the IRA holder dies and the money is distributed to him. The answer is no. This situation counts as a qualified distribution and is not subject to penalties.