Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here’s a tax question, I got from one of my clients:
Can I take out an early Roth IRA distributions to help pay for my son’s college education without a tax penalty?
In regards to a Roth IRA, you can have an income and penalty tax-free distribution if you meet both rules:
1. 5-year holding period. You need to meet the 5-year holding period requirement. This once-in-a-lifetime satisfaction rule is only needed for the first Roth IRA contribution that you made. Any subsequent contributions will not start a new holding period. That’s huge! So what is the tax strategy? You need to open up a Roth IRA account ASAP so the 5-year clock starts ticking!
2. 10% penalty exceptions. You are not subject to the 10% withdrawal penalty if you meet the following exceptions:
a. Use it for college education
b. You are age 59 ½ or older
c. Distribution is due to death or disability
d. Distribution for first-time homebuyer
Please note, that this is not a complete list, but just a sample of some of the exceptions.
So to answer your tax question, you met the 10% tax penalty exception. However, you need to inquire about your first Roth IRA contribution date to confirm if you met the 5-year holding period. And if you did, congratulations! Tax-free is my favorite tax word!
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Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.