04 Sep Can peace officers take money early from a Roth?

Q. I’ve had a Roth IRA for more than five years. I want to retire at age 50. Do I have to pay taxes on the Roth IRA if I withdraw that money at age 50? I know there was some change made for peace officers and firefighters – I’m a peace officer – but I don’t understand the details.
— Still working

A. We think you have some confusion about the regular Roth IRA rules and other special rules that apply to public safety employees when it comes to retirement plan withdrawals.

First, there is a special exemption to the normal distribution rules for public safety employees.

These include government or municipal firefighters, police and emergency medical services employees, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

He said the definition was further extended to include federal law enforcement, customs and border protection officers, federal firefighters, air traffic controllers, nuclear material couriers, members of U.S. Capitol police, Supreme Court police, and diplomatic security special agents of the Department of State.

“For a public safety employee they can take a retirement plan withdrawal as early as age 50 without the normal 10 percent early withdrawal that typically applies until age 59 1/2 years old and in some cases age 55,” Maye said. “However, the special exception only applies to government retirement plans either a defined benefit or defined contribution plan.”

So the special exception does not apply to either traditional IRA or Roth IRA accounts.

The act of rolling a government benefit plan into an IRA or Roth IRA would cause the loss of this special exception for public safety employees, Maye said.

So if you want to take a Roth IRA distribution prior to age 59 1/2, you would only be entitled to the normal IRS exceptions afforded to all other taxpayers.

Maye said Roth IRA distributions can still be tax-free at younger ages as long as they are considered a qualified distribution. He recommends you take a look at IRS Publication 590 for the details on which exceptions may allow you to avoid the 10 percent penalty.

“The one good bit of news is when a distribution is taken from a Roth IRA, the first money out is considered to be from their contributions,” Maye said. “So the reader may still be able to take a tax-free withdrawal if the distribution is limited to the contribution amount or less.”

Finally, before doing anything you may want to meet with a qualified professional to discuss your options.

“Normally one of the main benefits of a Roth IRA is that it is tax-free rather than tax-deferred if the rules are followed,” Maye said. “Ideally it’s best to let the Roth IRA grow over an extended period of time unless circumstances dictate otherwise.”

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This story was originally published on Sept 4, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.