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I'm considering putting a few thousand dollars or so into a Roth IRA. The tax due date is in a few days and I want to finish it now because I think I have to report Roth IRA contributions on taxes.

Main things I want to know are can I open a Roth IRA before tax time comes (7 days as of the time I'm typing this), and what's the earliest time I can withdraw contributions penalty-free if I were to need them. Just the contributions not anything that is earned in the account.

It says on the Fidelity Website for Roth IRAs:

If you are considering withdrawing from a Roth IRA, you can always remove your original contributions without penalty. For example, if you've contributed $12,000 over 2 years, and it's grown to $13,200, you can take out the original $12,000 without taxes and penalties, but not the $1,200 of growth. However, if you do want to withdraw the growth, there is a 10% additional tax unless you meet specific criteria: 5 years must have passed since your first contribution

So if I were to put say $2,000 into a Roth IRA and for whatever reason I needed to pull out $1,000 within the next year. Would I be able to withdraw my contributions without penalty if my account is under 5 years old?

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    Per IRS: "You cannot deduct contributions to a Roth IRA."
    – jeffronicus
    Apr 8, 2022 at 22:45
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    @jeffronicus but still there's an annual limit that will be lost if a contribution is not timely made.
    – littleadv
    Apr 8, 2022 at 22:47
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    no, you're not legally required to "report any investments to the IRS", and IRA contributions are reported to the IRS by the custodians. The date is important if you want to "backdate" your contribution to the previous year.
    – littleadv
    Apr 8, 2022 at 22:48
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    Note: Fidelity has nothing to do with the question. They follow IRS regulations. You can move the finds from a Fidelity Roth IRA to another brokers Roth IRA at any time. I am editing the question to remove Fidelity from the question.
    – mhoran_psprep
    Apr 9, 2022 at 11:37
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    While there is no tax penalty for withdrawing only the contributions to a Roth IRA at any time, be aware that such withdrawal might reduce the value of the IRA enough that there will be fees etc imposed by the IRA custodian on account of low balance. Many fund houses charge an annual fee for low balances in individual funds, regardless of whether the funds are within an IRA or are ordinary investments accounts. In Fidelity's example, taking out $12K contributions leaving a $1.2K balance, will likely trigger a low-balance charge.
    – Dilip Sarwate
    Apr 9, 2022 at 19:49

3 Answers 3

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Yes. You are correct that Roth IRA account holders can always withdraw the money they contribute without incurring taxes or penalties because you have made these contributions with after-tax money.

You cannot withdraw earnings with the same flexibility.

Be sure to designate 2021 as your contribution year if you are able to make the contribution before the deadline of April 18, 2022. This way you can later make a full 2022 contribution if you are able.

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Would I be able to withdraw my contributions without penalty if my account is under 5 years old?

Yes, you would. 5 years is a holding period for conversions, it doesn't apply to contributions.

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  • To be clear: distribution from earnings aka growth is taxed if less than 5 years since first contribution, as the Q quotes, and from conversion(s) if less than 5 years for each conversion separately. Contributions are not included in either of these.
    – dave_thompson_085
    Apr 10, 2022 at 5:46
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Normally you can withdraw contributions without penalty, immediately after the funds clear (so, say, within a few days). If for some reason you do have to withdraw funds, if you wish to, you also have 60 days to put the funds back in without having it count towards the annual contribution max, and you can do this once per calendar year. Note it would normally be pointless to deposit the funds if you knew for sure you were going to withdraw it shortly after.

That being said, hypothetically, if you can't currently afford to contribute to a Roth but believe you will be able to within a couple of months, and you are close to the cutoff (April 15ish1) to still mark the funds for last year contributions, you could deposit the funds now (however you can come up with it), withdraw the money a few days later (and put it back where you got it), and then within 60 days when your expected money is received, put the money back into your Roth and it will still count as last year's contribution. Had you waited until May or June to deposit it for the first time you wouldn't have been able to mark it as last year's contribution. Note the only advantage you gain from doing this is to enable yourself to still contribute the full max amount again this year.

More generally, because you can withdraw Roth contributions without penalty, you don't have to choose between having an emergency fund and a Roth IRA. If you don't have enough to fund both, you can safely put your emergency fund into a Roth, and if you don't have an emergency, that's great! You can leave the money there. But if you do have one, you simply withdraw it and no harm was done. It's certainly better to put the money into the Roth and have to take it out, than it is to not put the money into the Roth just in case you might need it, end up not needing it, and losing the chance to put that money in for the year.

Tips:

  1. If you do plan to use some portion of your Roth IRA as an emergency fund, don't invest it; leave it in cash. This way there will be no risk of losing it. As you build up your Roth beyond your emergency fund needs, go ahead and invest the excess.
  2. If you do have to pull money out, and you manage to put it back in within 60 days, make sure you contact your bank to tell them you're putting the previous distributions back in so they can mark it as such (it's considered a rollover) and it won't count as contributions against your max allowed for the current year. (Just in case it isn't the default.)

1 "April 15ish" is used to signify that the tax-day cutoff is the first non-holiday weekday on or after April 15. This year, April 15, 2022 is a Friday but also a holiday (Emancipation Day), so the next non-holiday weekday is Monday April 18, 2022.

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