Technically, transferring money out of a Roth IRA is just as easy as putting it in -- you just have to ask because you're allowed to take withdrawals at any time. But, unless you want your transfer to be treated as a permanent distribution from the Roth IRA, you're very limited as to where you can transfer the money.
Transfers to Roth IRAs
If you're looking to transfer your Roth IRA funds to another retirement account, your options are very limited. You can only transfer Roth IRA funds to another Roth IRA. Even Roth 401(k) plans can't accept transfers from Roth IRAs. If you take money out of your Roth IRA and put it in any other type of retirement account, it counts as a permanent distribution from your IRA and a contribution to the other retirement account.
You can move money from one Roth IRA to another with either a transfer or a rollover. The transfer is the easiest to manage. All you have to do is tell your bank where to move the money, and you're done. With a rollover, you take a withdrawal from the Roth IRA and then, no more than 60 days later, you redeposit it in your other Roth IRA. Not only do you need to worry about the deadline, you also have to report it on your taxes, even though you won't owe any extra.
Moving to Non-Roth IRA Accounts
If you transfer money out of your Roth IRA to a different type of retirement account, such as a traditional IRA, it is as if you took a distribution from the Roth IRA and made your annual contribution to the other account. Qualified Roth IRA distributions come out tax-free, but that requires that the account be at least five years old and you be either 59 1/2 years old, permanently disabled or taking out no more than $10,000 for a first home purchase.
When you aren't taking a qualified withdrawal, you get all your contributions out without taxes or penalties, and you get to take out all your contributions before you touch your earnings. But, early withdrawals of earnings are taxable and the early withdrawal penalties apply. Then, when you redeposit the money in a traditional IRA, it counts as your annual contribution because it's not a permissible rollover. If the transfer is more than your annual contribution limit, you owe excess contribution penalties each year until you correct the excess.
Penalties and Exceptions
If you're not taking a qualified withdrawal, you don't have to worry about exceptions for withdrawals of contributions because they aren't taxable and the penalty doesn't apply. But, if you exhaust the contributions in the account and start withdrawing earnings, a 10-percent early-withdrawal penalty applies to the earnings portion, on top of the income taxes. For example, if you take out $6,000 of earnings, you've got not only $6,000 of extra taxable income, but also a $600 tax penalty. But, if that $6,000 is just contributions, you won't owe taxes or penalties. A few exceptions do exist, but they only get you out of the penalty, not the regular income taxes. These include significant medical expenses, higher-education expenses and distributions for qualified military reservists.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."