An individual retirement account (IRA) can sound like a prison sentence once you start reading all of the fine print about what you are and aren’t allowed to do with your money once you commit it to this savings endeavor. It may feel like you should kiss your cash goodbye and hope you see at least part of it at age 60. Although a Roth IRA is considered the more flexible type of account for reasons that will be discussed later, it still typically holds account users to certain restrictions, the biggest of which is not accessing their money until retirement. But what happens when you do commit to a Roth IRA and then need to close out of it early for any number of emergency or contingency reasons?
When closing a Roth IRA, you’re going to suffer steep penalties in terms of fees and also the paperwork necessary to actually retract your money earlier than the agreed-upon maturity date. Typically, you can’t withdraw from your Roth IRA until you turn 59.5 and if you’ve had the account open for at least five years (and different from a traditional IRA, you don’t have to withdraw your balance at this time). However, there are a few exceptions, such as a) disability, b) death and c) buying a first home.
a) Disability payments are fairly straightforward medical expenses deductions that aren’t penalized.
b) In the event that the person who opened the Roth IRA dies unexpectedly, you may have privileges as a spouse or heir (check with a financial advisor for the most current terms and conditions for access, as well as with the deceased’s individual arrangement) to close the account and distribute the accrued funds in accordance with the IRS. This must be arranged within five years of the person’s death. In some cases, a sole beneficiary may combine the original owner’s Roth IRA with theirs; however, the account can otherwise no longer be treated as an IRA.
c) Unlike a traditional IRA, the Roth IRA allows you to withdraw up to $10,000 dollars for the purchase,…