Raiding a retirement account is a last resort: you’re losing tax-free compounding interest on the amount you withdraw, and you can’t replace the money withdrawn. In this day and age, though, the last resort is being tapped more than any of us would like. 

The big mistake occurs because people don't know the answer to the big question, "Do you know how much you can pull out of your Roth IRA tax-free and penalty-free before retirement?"

Roth IRAs can be a great investment tool, but they come with a special rule: you can withdraw the amount you have contributed at any time penalty-free and tax-free, but you must have proof of how much you have contributed. And herein lies the great mistake.  What if you don't know? 

The best way to avoid the mistake is to keep your old 5498 forms, even if you purge all other tax records. These are the forms that your IRA custodian sends to the IRS every year that you make an IRA contribution. Even if there isn't any possibility you will need to tap into your account before 59 ½, its a good idea to keep the 5498 forms. Any amount you take out over and above what you have contributed is subject to income tax plus a ten percent penalty. In a nutshell, if you don't know what your contributions were, you don't know what is taxable.

Read more on Forbes: The Roth IRA Mistake

Need help on estate planning or tax law?  Contact us by using the form on this page.

- The Estate Planning Team
   Rogers Sheffield & Campbell, LLP

Practice Areas And Regions Served

Rogers, Sheffield & Campbell, LLP primarily serves individuals, families and businesses up and down California's Central Coast and North Los Angeles County, including many Santa Barbara, San Luis Obispo, and Ventura County communities.

Our experienced legal team includes business lawyers, real estate lawyers, tax lawyers, estate planning lawyers and civil litigation lawyers. Our areas of legal practice expertise include Business Law, Entity Formation, Real Estate Law, Tax Law, Estate Planning, Wills, Trusts, Probate, Wine Law, Vineyard Law, Civil Litigation and Alternative Dispute Resolution.


This website is offered as a service to our clients and to the public  Read our disclaimer

Privacy Policy

Our privacy policy applies to information collected online from users of this website.