Understanding Traditional IRA Withdrawal Rules

An important part of retirement planning is understanding the rules the IRS sets in relation to traditional IRAs. These traditional IRA withdrawal rules exist in an effort on part of the government to make sure IRA money is used specifically for one’s retirement.

Breaking IRA withdrawal rules can result in you having to pay a penalty—the amount of which can vary depending on the type of IRA you have. Understanding traditional IRA withdrawal rules before attempting to take any money out of your IRA can ensure you stay on the safe side of potential penalization.

The following is a breakdown of traditional IRA withdrawal rules.

Age 59 and younger

  • The U.S. government charge a 10% penalty on early withdrawals from a traditional IRA. A state penalty may also apply.
  • Deductible contributions and earnings will be taxed as ordinary income.
  • Penalties can be avoided in the event of:
    • An eligible first-time home purchase
    • Some educational expenses for yourself and your immediate family
    • Disability or death
    • Unreimbursed medical expenses that are more than 7.5% of your gross income
    • Health insurance premiums if you are unemployed for at least 12 weeks
    • You opt to receive your funds on a regular distribution schedule
    • A distribution is the result of an IRS tax levy
    • You are a member of the National Guard or a reservist who gets called to active duty for at least 180 days

Ages 59.5 to 70

  • There are no withdrawal restrictions or penalties in this age bracket.
  • Deductible contributions and earnings will be taxed as ordinary income.

Age 70.5 and older

  • Withdrawals are mandatory and are called Required Minimum Distributions.
  • Required Minimum Distributions are determined based on a formula that takes into account the amount in your IRA and your life expectancy.
  • If you do not make withdrawals, you have to pay a 50% penalty on the amount you were required to withdrawal.

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