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 MRD 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 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
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.
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 taking distributions; use our Retirement Income Planner to help determine if your assets will provide the income you need during retirement.
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 penalty contributions (also known as “basis”) from your Roth IRA without penalty. Consult your tax advisor about your particular situation.
Minimum required distributions (MRDs)
Owners of Traditional IRAs are required to take MRDs starting in the calendar year in which they turn 70½. There is no MRD requirement for Roth IRAs during the lifetime of the original owner.