I have heard that if you withdraw money from your Roth early, there is no penalty or tax as long as it is a "contribution". However "earnings" cannot be withdrawn early without paying tax and 10% penalty. When I put money into my Roth how will it be classified as earnings or a contribution?

1 Answer 1


Deposits are contributions. You deposit say, $5000, and over time you have $6000. The $5000 can be withdrawn any time with no issue. It's tracked via form 8606.

With this in mind, I wrote an article The Roth Emergency Fund, suggesting that since one can withdraw deposits with no issue, the Roth can be used to hold emergency money.

  • 2
    Oh I see I was thinking about this completely incorrectly. So every amount you personally put in (contribution) you can take out without penalty. Any money gained through interest (earnings) cannot be taken out without penalty before 59.5 years of age.
    – Adam Johns
    Dec 18, 2013 at 16:20
  • Yes - See edit above. Just to reinforce the point. Dec 18, 2013 at 16:24
  • Could you explain what happens if you lose money in the roth? I deposit $1000 but I lose $500 every year for 5 years. Then a year of $5000 gain? Can I still withdraw $5K
    – MrChrister
    Dec 18, 2013 at 16:28
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    @DilipSarwate I think he meant every year he deposited 1000 again. Not a one time 1000 deposit. I got confused reading that at first also.
    – Adam Johns
    Dec 18, 2013 at 16:57
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    @AdamJohns - no minimum time. My emergency Roth concept is not to treat your retirement account like an emergency fund, but rather, if one's 401(k) is enough, and they wouldn't otherwise use Roth, putting liquid emergency money into a Roth is a no risk option. It's not invested in stocks, but the same as any emergency money, money market, CDs, Tbills. Money market is liquid, same or next day withdrawal depending on broker. Dec 18, 2013 at 17:02

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