Withdrawal from roth ira...5yrs?

[cologero]

I do not need to make a withdrawal from my roth ira, but I'm confused on the 5-year rule. I always thought I was able with withdraw my 'contributions' at anytime (penalty free), but I've recently read that only applies if the account was open for 5+ years. Is that true? The reason I'm asking is that I put a little bit of cash in my Roth for my EF. Hopefully I never need it

[corn18]

Yes, there is a 5 year rule.

Five-year test
The five-year test is satisfied beginning on January 1 of the fifth year after the first year you establish a Roth IRA. If you established a Roth IRA in 2012, for example, any distribution from a Roth IRA will satisfy the five-year test if the distribution occurs on or after January 1, 2017.

The five-year test is satisfied on January 1 even if you establish your Roth IRA late in the year. In fact, you’re treated as if you established your Roth IRA in the previous year if you make the contribution on or before April 15 and designate it as a contribution for the previous year.

When you meet the five-year test for one Roth IRA, you meet it for all Roth IRAs. For example, suppose you contributed $500 to a Roth IRA in 2012. Three years later you decided to set up another Roth IRA and contribute $2,000. Both IRAs will meet the five-year test on January 1, 2017.

This site has everything you could want to know about Roth IRA's:

http://fairmark.com/retirement/roth-accounts/

[MonkeyMama]

I do not need to make a withdrawal from my roth ira, but I'm confused on the 5-year rule. I always thought I was able with withdraw my 'contributions' at anytime (penalty free), but I've recently read that only applies if the account was open for 5+ years. Is that true? The reason I'm asking is that I put a little bit of cash in my Roth for my EF. Hopefully I never need it

You can withdraw 'contributions' *any time* without any penalties.

The 5-year rule has to do with withdrawing the earnings/growth from your ROTH.

This is why I would always max out my ROTH unless I Was completely destitute. If i have *any* cash or investments it's better to max out the ROTH (for example, if unemployed for the long run - I would shift my assets over). It's not locked up forever, so might as well get the tax-free advantage if you can for the long run.

[JustBill]

The rules are different for a backdoor Roth.

[cologero]

You can withdraw 'contributions' *any time* without any penalties.

The 5-year rule has to do with withdrawing the earnings/growth from your ROTH.

This is why I would always max out my ROTH unless I Was completely destitute. If i have *any* cash or investments it's better to max out the ROTH (for example, if unemployed for the long run - I would shift my assets over). It's not locked up forever, so might as well get the tax-free advantage if you can for the long run.

Ok, that's what I thought. So I can withdraw my contributions before 5 years penalty free, and only the earnings/growth are bound by the 5 year rule. I want to max out my Roth for 2016, but started thinking "what if lost my job," etc). Just didn't want to be screwed if my money was tied up because I first opened my Roth in 2014.

[Jluke]

I want to max out my Roth for 2016,

As you know you have until April 15, 2016 to make contributions for 2015.

If you haven't maxed out 2015 yet, consider making additional contributions for 2015 up to April 2016. Then start your 2016 contributions; you might be able to max out 2015 and 2016 - or get close to doing so.

Either way that strategy at least gives you the chance to contribute more to your Roth account.

[cologero]

As you know you have until April 15, 2016 to make contributions for 2015.

If you haven't maxed out 2015 yet, consider making additional contributions for 2015 up to April 2016. Then start your 2016 contributions; you might be able to max out 2015 and 2016 - or get close to doing so.

Either way that strategy at least gives you the chance to contribute more to your Roth account.

My Roth is maxed out for 2015. Just trying to decide whether to save my 2016 cash for part of a down payment on a house next year or max out my Roth again (would be 3rd year in a row).

[Jluke]

My Roth is maxed out for 2015. Just trying to decide whether to save my 2016 cash for part of a down payment on a house next year or max out my Roth again (would be 3rd year in a row).

If you are buying a house in 2016, then you would most likely want to put as much cash down as you can (minimum 20%) or save for an EF. That is a whole other subject, but I'll bite:

My usual comment: if you haven't already, download an amortization schedule and plug in your mortgage details. take a look at how much interest you will be paying. If at all possible, do a 15-year or 20-year mortgage instead of a 30-year.

Depending on the mortgage, the interest you will pay on a home will make the ~11k Roth savings look like pennies.