Taking money out of an IRA is referred to as a distribution. Since the account is intended for retirement savings, the tax advantages go hand-in-hand with keeping the money in the account until 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; you may also incur penalties.
Consult your tax advisor about your particular situation and review the information outlined below for details about withdrawing from a Traditional or Roth IRA.
If you have an inherited IRA, there are different rules for those inherited assets and you may be required to begin distributions by a certain date; see RMD Rules for Inherited IRAs for more details.
Withdrawal rules for Traditional IRAs
With Traditional IRAs, you defer taxes until you begin to withdraw money. The rules vary depending on your age.
Withdrawals prior to age 59½
Distributions from Traditional IRAs prior to age 59½ are subject to a 10% penalty, in addition to applicable federal and state taxes. Under certain circumstances, you may be able to avoid the penalty on early withdrawals. Common exceptions include:
- First-time home purchase
- Qualified education expenses
- Death or disability
- Unreimbursed medical expenses
- Health insurance, if you're unemployed
- A qualified birth or adoption distribution
If one of these exceptions applies, then you may need to fill out IRS Form 5329 when you file your taxes. Please see the instructions on IRS Form 5329 and talk to your tax advisor.
Under the CARES Act, individuals can take a qualified coronavirus related distribution from their IRA between January 1, 2020-December 30, 2020, if they qualify. The coronavirus related distribution is not subject to the 10% penalty, is includable in income over a 3-year period and can be repaid to the IRA within that same 3-year period.
In order to qualify for the coronavirus related distribution, the individual must:
- be diagnosed with COVID-19, or spouse or dependent is diagnosed with COVID-19
or who experiences adverse financial consequences as a result of:
- quarantine, furlough, or laid off or reduced work hours due to COVID-19
- unable to work due to lack of childcare due to COVID-19
- closing or reducing hours of a business owned or operated by the individual due to COVID-19.
Additionally the individual can also experience an adverse financial consequence:
- reduction in pay (or self-employed income) due to COVID-19
- job offer rescinded or start date delayed
- spouse or member of the household is quarantined, furloughed or laid off, or reduced work hours due to lack of childcare due to COVID-19, reduction in pay (or self-employed income) due to COVID-19 or job offer rescinded or start date for a job delayed due to COVID-19
- closing or reduced hours of a business owned or operated by the individual's spouse or member of the individuals household.
Individual is a member of the household if he/she shares the individuals principal residence.
Withdrawals between age 59½ and 72*
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 taking distributions; use our Planning & Guidance Center to help determine if your assets will provide the income you need during retirement.
In addition, we offer the Retirement Distribution Center (RDC) which provides tailored guidance and resources as you progress through retirement years.
Withdrawals at age 72* and beyond
Starting at age 72,* owners of Traditional IRAs must begin making withdrawals, also known as required minimum distributions (RMDs), from their accounts. These withdrawals are mandatory and violations incur severe penalties. The CARES act temporarily waives RMDs for all types of retirement plans for calendar year 2020. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020. There is no RMD requirement for Roth IRAs during the lifetime of the original owner.
Use our guide to help you calculate and manage your RMD. Our system provides estimated RMDs for your Fidelity IRAs (Traditional IRAs, SEP IRAs, SIMPLE IRAs, Rollover IRAs, and all small-business retirement plans). It also keeps track of any withdrawals you have made, federal and state taxes paid, and allows you to schedule automatic withdrawals so you are never behind.
Withdrawal rules for Roth IRAs
A qualified distribution from a Roth IRA is tax-free and penalty-free, provided that the five-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. For Roth IRAs, you can always remove post-tax contributions (also known as "basis") from your Roth IRA without penalty. Consult your tax advisor about your particular situation. Unlike Traditional IRAs, there are no required withdrawals during the lifetime of the original owner.
