Like traditional IRAs, Roth IRAs allow you to save for retirement with certain tax advantages. CNN Money explains that you can withdraw money from either at any time but doing so too early may incur taxes and penalties; if you close a Roth IRA at the wrong time you can incur similar charges. Although the two have similarities, there are some key differences to be aware of.
How to Close Roth IRAs
The Fidelity website shows that Roth IRA account holders can make withdrawals at any time after they reach 59½ and if the account is five years old. Other qualifying reasons for withdrawals include making a first-time home purchase, death or disability.
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If you need to know how to close Roth IRAs, you can call Fidelity at 800-343-3548 or use their virtual assistant to get started. You may already be dealing with a particular Fidelity representative, so it might make the most sense to contact that person directly. It is also wise to speak with a tax professional before moving any money around.
If you do not meet the qualifications for making early withdrawals or you want to close your Roth IRA account, you may be able to avoid the charges by switching the money over into another retirement account. There are other ways that you may be able to avoid the charges, but the most common way to avoid the 10 percent early withdrawal penalty is to wait until you reach 59½.
Avoiding Roth IRA Charges
With Fidelity Roth IRAs, you can remove the original contributions without any penalties. Supposed you contributed $25,000 over some number of years and it grew to $27,500. You are permitted to withdraw the original $25,000 without any taxes or penalties, but not the $2,500 in growth. Withdraw that $2,500 and you have to pay 10 percent tax, with a few exceptions.
To avoid that tax, the account must be at least five years old. Besides that, you have to meet one of their listed requirements: The first to options are being at least 59½ years old or requiring the money due to a death or disability. You can also withdraw the $2,500 tax-free if you are at that age and need it for health insurance when unemployed, for medical expenses, qualified education expenses or a first-time home purchase.
U.S. News & World Report Money claims that as of 2020, account holders can also withdraw IRA money after having a child or adopting one. The IRS allows up to $5,000 without penalty, as long as it is taken with a year after the birth or adoption. This source also posts that military members who take an IRA distribution while serving may also be exempt, depending on the time served. There may be other exceptions if the withdrawals as done as a series of annuity payments or if it is an inherited IRA.
Working With Fidelity Accounts
Fidelity has a fee chart on their website, and this shows that they do not charge customers to close IRA accounts. Like other financial firms, they do charge clients fees for transactions like stock and bond purchases. They also charge clients advisory fees, which are generally based on a percentage of the amount of money in an account.
They also recommend having a Roth IRA as part of the overall retirement plan because these investments can grow tax-free. Roth IRAs also do not have required minimum distributions throughout the lifetime of their original owners. This also means that the assets can be passed down to heirs tax-free.
Consider also: What Happens When I Close an IRA?