Are you planning to open a Roth IRA account? If you are, make sure that before you set up a Roth IRA account, you are fully aware of the different Roth IRA rules that envelopes the account. You should also pay particular attention to the IRA withdrawal rules so that you can avoid high taxes and penalties in the future. Knowing the different Roth IRA rules will help you determine whether Roth IRA is really the type of IRA that will best suit your situation.
Roth IRA accounts provide tons of benefits for workers. Like other IRAs, Roth IRAs provide workers a way to increase the growth potential of their funds through the special tax considerations and through the various investment options offered by the IRA accounts. However, Roth IRA is usually preferred by most workers due to its simplicity and flexibility. The IRA withdrawal rules of Roth IRA accounts are more flexible as compared to traditional IRA accounts. In a Roth IRA accounts contributions can be withdrawn anytime. This provides account holders a more diversified option regarding their finances. The Roth IRA rules also allow individuals to withdraw their principal contributions and earnings tax free given that they adhere to some conditions.
There are two main conditions laid out by the Internal Revenue Service. The first condition is that the account holders must first reach the age of 59 ½. IRA accounts, including Roth IRA are made to help individuals to save for their retirement. This IRA rule regulates account holders so that they will not withdraw their earnings from their IRA account and still have funds to sustain him for a lifetime after retirement. If a person cashes out before this age he will pay for penalties or additional taxes or both, depending on his reason for the withdrawal.
Another condition that needs to be fulfilled is the five-year-rule. Individuals must not make withdrawals prior to the first day of the fifth year after the account was opened. If the individual has reached the age of 59 ½ or has a qualifying reason for distribution, but has not fulfilled the five year rule, he is required to pay taxes.