Contributions

• In effect, the IRS has already charged taxes on your Roth IRA contributions. Unlike a traditional IRA contribution, which you can deduct from your taxable income, after-tax earned income makes up Roth investments. Each year, the IRS imposes a cap, based on factors such as your age and income, on the amount of money you can put into a Roth. If you exceed this limit and fail to remove the excess contributions prior to your tax return's due date or move the contribution to a future year, you must pay the IRS a 6-percent excise tax on the excess contribution.
  
  

At Retirement

• When you turn age 59 1/2, the IRS qualifies you as retired, even if you're still working. Beginning at this age, you can withdraw Roth IRA funds---original contributions as well as earnings---tax- and penalty-fee, as long as you have held your Roth account for a minimum of five tax years. No matter when you access them, you can always get to original Roth contributions tax- and penalty-free. If you don't follow the rules, the IRS can tax any earnings you remove.
  
  

Premature Withdrawal

• Generally, when you remove Roth IRA money prematurely, the IRS charges you regular income plus a 10-percent tax penalty on the earnings portion of the withdrawal. For instance, consider a Roth IRA with an original contribution---or cost basis---of $3,000 that grew to $4,000. If you take out the entire amount before you turn age 59 1/2, the IRS, under most circumstances, charges you regular income tax plus the 10-percent penalty on $1,000, which represents the accumulated earnings on your original investment.
  
  

Early Withdrawal Exceptions

• Several scenarios allow for tax- and penalty-free Roth IRA withdrawals ahead of retirement. The most common include using up to $10,000 of Roth funds to pay for first-time homebuyer expenses or withdrawing any amount after you become disabled. In other instances, you can skirt the 10-percent penalty, but not regular income tax on the earnings you withdraw. Examples include using the money to cover higher education expenses or pay significant unreimbursed medical expenses.