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I read TMF Taxes' work on Roth IRAs but still have a question. I made a $2,000 contribution for tax year 1999 in early 2000. If an emergency arose and I wanted to withdraw that $2,000 (assume no withdrawl of earnings on the contribution) would that be subject to the five year rule? I understand withdrawls can be qualified and avoid taxes if withdrawn on or after 1/3/2004 based on the five year rule. However, I am relatively young (35) and 59.5 is a long way away as are the other criteria for qualifiation. I initially thought the $2,000 contribution could be taken out without penalty at any time, but now wonder.

Thanks,

John

PS: I hope this is the right board to post this, it was linked to TMF Taxes' essays.
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Yes, you can withdraw your contributions to the Roth IRA at any time, for any reason, without tax nor penalty.

There may be expenses related to liquidating whatever the Roth IRA money is invested in (e.g., trading costs to sell stocks that were purchased within the Roth IRA).

Now the earnings are a different story--there you have to play by the rules to avoid tax and penalty.
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I made a $2,000 contribution for tax year 1999 in early 2000. If an emergency arose and I wanted to withdraw that $2,000 (assume no withdrawl of earnings on the contribution) would that be subject to the five year rule?

You've already received a correct answer to your tax law question. I just want to point out that emergencies do arise, and planning to use a retirement fund to meet them is not very good planning. Far better is to establish for yourself an emergency fund which you can tap if needed. You might want to visit the budgeting board for some ideas.

TMF ExRO
Phil Marti
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Phil,

I am familiar with the three bucket approach and use it to an extent. Our primary emergency fund consists of liquid money at the bank. As 4/15/00 was approaching, however, I was torn between adding $2,000 to my Roth or using it to increase the emergency fund. I did not want to miss the Roth contribution window but thought a larger emergency fund would be prudent, hence my action. This worked well. Since 4/15/00 we have had a car totalled, a dish washer die and our second car in need of substantial body work. All of these were funded through the primary emergency fund, but it was nice to know there was also insurance in the form of one Roth sitting in a money market fund. While I can understand your assumption, I do not believe this specific case represents "not very good planning".

John
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