I just heard of the rule stating that the contribution into Roth IRA can be sold at any time, any age, without a 10% penalty or any tax liability?

It sounds like an advantage, but it sounds like since we try out best to use the $6000 quota per year to get money in, it'd be not wise to actually take money out?

On the other hand, if we don't contribute to Roth IRA, and invest $6000 in stock, and take it all out as cash at $12,000 when it has doubled, then it is subject to tax, perhaps for about $2000, while if we actually did put that $6000 in Roth IRA, and we take that $12,000 out, we are subject to 10% penalty for the gain of $6000, and tax free for the other $6000, so we actually may save about $1400?

1 Answer 1


If you invest $6,000 in a non-retirement fund and you sell that fund when the value reaches $12,000 you will be taxed on the $6,000 gain. How much depends on your exact tax situation including how long you owned the shares, your other income and gains, and your filing status.

But if you put the $6,000 into a Roth IRA, and then you want to remove the $12,000 from the Roth and spend the money on a new car, then the first $6,000 can be withdrawn tax free but the $6,000 in gains will be taxable and may also be subject to a 10% penalty. There is a list of ways you can avoid the penalty.

In your example you estimated the tax in situation 1 as being 33% but it you are facing the 10% penalty in situation 2 then the tax and penalty is 43%.

Of course if you are selling the fund but keeping the money in the Roth IRA and buying another investment then there is no tax or penalty.

Here is some guidance from IRS pub 590-B:

Are Distributions Taxable?

You don't include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also don't include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions , later.


What Are Qualified Distributions?

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

  1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

  2. The payment or distribution is:

    • Made on or after the date you reach age 59½,
    • Made because you are disabled (defined earlier),
    • Made to a beneficiary or to your estate after your death, or
    • One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

Additional Tax on Early Distributions

If you receive a distribution that isn't a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.


Other early distributions.

Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that aren't qualified distributions.


You may not have to pay the 10% additional tax in the following situations.

  • You have reached age 59½.
  • You are totally and permanently disabled.
  • You are the beneficiary of a deceased IRA owner.
  • You use the distribution to buy, build, or rebuild a first home.
  • The distributions are part of a series of substantially equal payments.
  • You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (defined earlier) for the year.
  • You are paying medical insurance premiums during a period of unemployment.
  • The distributions aren't more than your qualified higher education expenses.
  • The distribution is due to an IRS levy of the qualified plan.
  • The distribution is a qualified reservist distribution.

Note that this list may change based on the many tax changes taking place in 2020.

  • what if I put $6000 in Roth and invest in a stock, and when it grows to $12,000, then I sell half of it and take out $6000? Then this $6000 is tax-free and penalty free? Commented May 22, 2020 at 8:56
  • That $6000 is your contribution so you can remove it from the Roth IRA with no taxes or penalties. But why do you want to take it out? Commented May 22, 2020 at 10:10
  • I know, that's what I said in my question: usually we don't want to. But what if such as in this coronavirus situation we need to have some money. Then instead of selling the stock and pay capital gain tax on it, then it is better to sell $6000 worth of stock in the Roth IRA, and take this $6000 out, no penalty, no tax Commented May 22, 2020 at 20:06

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