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• You may be considering closing a Roth IRA because you need cash. Before determining whether this is a good option for you, you need to understand the tax consequences of withdrawing money from a Roth IRA.

• With a conventional IRA, you get a tax deduction when you make a contribution to the IRA, the money accumulates tax free, and then you are taxed when you take withdrawals during retirement. A Roth IRA reverses the process. Although you don't get a deduction when you contribute, you get the same tax free accumulation, and the money will not been included in income when it's distributed in retirement. The lack of a deduction also means that if you withdraw the contributions before retirement, they will not be included in income. This doesn't mean that there are no tax consequences to a withdrawal, however, as the money you've earned will be taxed, and may also be subject to a penalty, if it's withdrawn in as a "nonqualified" distribution as defined by the IRS.IRS: Publication 590

• If you withdraw money from the Roth IRA after the date you turn 59 1/2 and the first contribution you made to the Roth IRA was more than five tax years ago, you can withdraw all or part of the money with no tax or penalty.IRS: Publication 590

1. There are no tax consequences to closing the Roth IRA under these circumstances, although you do lose the opportunity for your money to continue to grow tax free.
2. You should consult your financial adviser to determine if closing your Roth IRA is the best option for you to access funds, or whether you should borrow, or liquidate other investments first.

• Withdrawals prior to age 59 1/2 are generally non qualified distributions. Although the amount of your contributions are not subject to tax, the earnings on that money will be included in income, and will be subject to an additional tax equal to 10% of the amount required to be included in income. There are several exceptions to this rule however, which characterizes the distribution, even if made before age 59 1/2, as qualified distributions, here no part of the money is subject to tax or penalty.IRS: Publication 590

1. Up to $10,000 can be withdrawn tax-free to pay for qualified home acquisition costs for a first-time home buyer, if you meet certain conditions.IRS: First Home
2. Withdrawals due to disability can also be considered qualified distributions.IRS: Publication 590
3. You can withdraw 100% of the money you have contributed without any tax consequences.IRS: Publication 590 So, if you have a loss on your investments, you can close the Roth IRA without paying taxes. If you have earned income, and wish to avoid paying taxes, you can withdraw the contributions, but leave the accumulated income in the account.
4. There are some non qualified distributions which will not be subject to the 10% penalty. These include situations such as having unreimbursed medical expenses or paying college tuition. Check with your financial adviser to see if any of these exceptions apply to you.IRS: Publication 590

• If you have a temporary need for cash, you can close the Roth IRA and open a new one within 60 days. As long as the money is redeposited in another Roth IRA within 60 days, no distribution will be deemed to have occurred.IRS: Publication 590

• The area surrounding Roth IRA distributions is complicated. Before contacting your financial institution to withdraw money, or close the account, contact your financial adviser to determine if this is the best option for you. Your adviser can also help you structure the withdrawal in a way that minimizes your potential tax liability.