# ROTH IRA early withdrawal



## Nivie (Apr 22, 2021)

My partner, a USC and long term resident in UK is cashing in her ROTH IRA, it will be an early withdrawal, she is under 59 1/2 and had the ROTH IRA 15 years.
There will of course be penalties to pay and tax on the IRS side of things.

Will she have to pay HMRC tax on this withdrawal or is it considered tax free income? 

Thanks


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## JustLurking (Mar 25, 2015)

Nivie said:


> Will she have to pay HMRC tax on this withdrawal or is it considered tax free income?


My _amateur_ guess: partially taxable to HMRC, though finessing this to get the right result may be tricky. The details will probably lie ravelled up somewhere in the US/UK tax treaty.

Article 17 paragraph 1(b) states that the UK cannot tax any pension withdrawal that would not be taxable in the US. This is the paragraph that generally fully protects qualified Roth withdrawals for UK residents. So that should cover all the post-tax contribution and conversion elements.

Which leaves the US-taxable (with penalty) growth element. Article 17 paragraph 1(a) generally reserves tax on pension solely to the UK, but the US annihilates that for US citizens with article 1 paragraph 4. Unless you can find some other helpful treaty article (I couldn't, on a quick scan) you'll need to spend some time with the treaty to work out which country has primary taxing rights, and then use foreign tax credits to avoid pure double-tax, the end result being your partner pays the higher of the two countries' tax rate.

Again though, all the above is _amateur_ treaty reading. US tax treaties are rarely clear, and often malleable and porous, so check all the angles before acting.

What is the goal of early Roth withdrawal? If it can be satisfied by withdrawing only the contributions and conversions, but leaving the growth intact, that might(*) generate no immediate tax or penalty liability to either country. Perhaps the growth element can then be left until after age 59.5, at which point that too can be withdrawn tax free. 


(*) Roths have some squirrelly five-year withdrawal rules on contributions and conversions. From the sound of things, your partner _probably_ won't fall foul of these, but well worth double and triple-checking.


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## 255 (Sep 8, 2018)

@Nivie -- My advice would be don't do it! A Roth is a very valuable asset and although, it is a ready sources of funds (even with the 10% penalty,) it is hard to replace. I can't speak to the UK side, but if a retirees' only source of retirement is a Roth IRA and U.S. Social Security retirement, then zero future income tax would be due.

Believe me, I stupidly emptied my own Roth IRA for a "seeming necessity" -- I'm well into retirement age now and have never recovered. Cheers, 255


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## Nivie (Apr 22, 2021)

Thanks for the replies.


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