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Can you take tax-free Roth payouts early?

by on
in Small Business Tax

Q. My accountant says that I can receive tax-free distributions from a Roth IRA before five years are up. Is this correct? D.B.R., Santa Barbara, Calif.

Sort of. Qualified distributions from a Roth in existence at least five years are completely tax-free. But distributions made before then are taxed in this order: nontaxable Roth IRA contributions first, amounts transferred from traditional IRAs second and earnings third.

So partial distributions from your account before the five-year holding period has been met are tax-free to the extent of your contributions.

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