Roth IRAs give you the ability to save after-tax dollars. This means you won't get a tax break for contributions, but you will get at least some of your money out tax-free when you cash out. Depending on the circumstances of your Roth IRA cash-out, you might have to pay some taxes or penalties, or you might get it all out without any tax consequences at all.
Requesting a Withdrawal
Getting the money out of your Roth IRA is the easy part: All you have to do is request a distribution from the bank or financial institution that holds your account. Different banks have different forms, but you typically need to provide your identifying information, your account information and how you want your money paid out to you. These forms are often available via the bank's website.
If you take a qualified withdrawal from your Roth IRA, you won't pay any taxes or penalties on your cash-out. To take a qualified withdrawal, you must be at least 59 1/2 years old, permanently disabled or taking out a maximum of $10,000 to buy a first home. In addition, the Roth IRA must have been open for at least five years, counted from January 1 of the tax year you made your first contribution. For example, if you made your first contribution in the 2015 tax year, the clock starts running January 1, 2015, regardless of when during the year the money was actually deposited.
Non-qualified Withdrawal Tax Consequences
If you are cashing out and it's not a qualified withdrawal, you get all your contributions out tax-free and penalty-free first. Then, you pay taxes and a 10 percent additional tax penalty on the earnings you take out, unless an exception applies to your situation. For example, say you've put in $44,000 to your Roth IRA and it's grown to $60,000. If you cash out with a non-qualified withdrawal, you'll get your $44,000 tax-free, but the $16,000 in earnings count as taxable income and are subject to the 10 percent additional tax penalty.
You never pay the penalty on withdrawals of contributions.
You can sometimes avoid paying the additional tax penalty if your circumstances meet the requirements for an exception. These include distributions for medical expenses exceeding 10 percent of your adjusted gross income, medical insurance after losing your job, higher education expenses for yourself, your spouse or your children and if the IRS levies your Roth IRA. In addition, if you're taking out up to $10,000 for a first home, but haven't had the Roth IRA open for at least five years, you can avoid the penalty (but not the taxes) on the distribution.