IRA Withdrawal Rules
The money you've put away in your IRA is for your retirement. If you take the money out early you'll miss out on some powerful tax benefits and reduce what you may have available when you need it.
Consult your tax advisor about your particular situation review the information outlined below for details about withdrawing from a Traditional or Roth IRA.
Withdrawal rules for Traditional IRAs
With Traditional IRAs, you defer taxes until you begin to withdraw money.
Withdrawals prior to age 59½
Distributions from Traditional IRAs prior to age 59½ are subject to a 10% penalty in addition to federal and state taxes. Under the following circumstances, you may be able to avoid the penalty on early withdrawals:
- First time home purchase
- Qualified education expenses
- Death or disability
- Unreimbursed medical expenses
- Health insurance if you're unemployed
Withdrawals between age 59½ and 70½
Starting at age 59½, you can begin taking money out of your retirement accounts without penalty. Keep in mind that you'll have to pay any federal or state taxes that might be due. You should also consider creating a plan for making withdrawals, to determine if your funds will provide the income you need during retirement.
Mandatory withdrawals at age 70½
Turning 70½ is a major milestone. If you have a Traditional IRA, that's when you must begin withdrawals, or Minimum Required Distributions (MRDs). You may also hear these referred to as Required Minimum Distributions or RMDs. Here are a few basics to consider about required withdrawals:
- Starting at 70½, MRDs are generally required every year from each of your tax-deferred retirement accounts for the rest of your life.
- MRDs are not required for Roth IRAs during the lifetime of the original owner. Withdrawals from a Roth IRA will not satisfy your annual MRD requirement.
- Penalties for taking less than your MRD after 70½ can be severe up to 50% of the amount not taken.
Withdrawal rules for Roth IRAs
A qualified distribution from a Roth IRA is tax-free and penalty free provided that the 5-year aging requirement has been satisfied and one of the following conditions is met:
- Over age 59½.
- Death or disability
- Qualified first-time home purchase
A non-qualified distribution is subject to taxation of earnings and a 10% additional tax unless an exception applies. Consult your tax advisor about your particular situation.
Unlike a Traditional IRA, there are no minimum required distributions beginning at age 70½.
