4 Penalty-Free Ways to Use a Roth IRA Before Retirement

I’ve written about the Roth IRA many times before, with good reason. Hands down, it’s one of the best places to invest for the long-term because it’s one of the only accounts that gives you tax-free money in retirement. But what you may not know is that unlike other types of retirement accounts, you can spend it before retirement without having to pay taxes or an early withdrawal penalty.

Owning a Roth IRA and really understanding all the rules, is another matter. So, in this post, I’ll explain the unique flexibility of these accounts and 4 ways you’re allowed to make penalty-free withdrawals from a Roth IRA to spend before you retire. 

Free Resource: Retirement Account Comparison Chart (PDF download)  - get this handy, one-page resource to understand the different types of retirement accounts.

In How to Make Kids Rich by Investing in an IRA, I discussed the eligibility rules and benefits of using a Roth IRA to give minors a financial head start in life. A Roth IRA is available to anyone, no matter your age, who has earned income up to certain annual limits (see the article about making kids rich for more details).

With a Roth IRA, your contributions are not tax-deductible, which means you make them on an after-tax basis. Then your investment earnings grow completely tax free—that’s a huge benefit!

Because you pay tax upfront on Roth contributions, you’re allowed to withdraw them at any time for any reason. You don’t owe the IRS additional tax or penalties on that portion of your account. That means you can take out an amount that equals, but doesn’t exceed, the total amount of your original contributions, with no problems.

Because you pay tax upfront on Roth contributions, you’re allowed to withdraw them at any time for any reason.

However, where things get a little confusing is for the earnings portion of your Roth account. The investment growth that your contributions creates is subject to tax in certain situations. There are restrictions on withdrawals of earnings because you haven’t paid tax on them yet.

Also, the IRS says earnings must be distributed from a Roth IRA last. So, how much you want to...

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