IRA withdrawal rules
Knowing the rules can protect your savings — and reduce your tax bill.Knowing the rules can protect your savings — and reduce your tax bill.
Once you've set up an Individual Retirement Account, it's important to know when you are eligible to take money out without incurring additional IRA penalties.
Traditional IRA withdrawal rules.
You’re probably aware that dipping into your account prematurely can trigger Internal Revenue Service (IRS) early withdrawal penalties.1 But the IRS rules also require mandatory withdrawals—and mistakes can be costly.2
What's more, unlike with a Roth IRA, once you reach a certain age, you don't have the option of leaving your money in a Traditional IRA. There comes a point when you must begin taking distributions.3
It's all in the timing.
You can begin taking IRS penalty-free distributions from your Traditional IRA at age 59½. You must begin taking them
at age 70½. Withdrawing money even a day too early or late could be a costly mistake. Consider these scenarios:
Early withdrawals: The price of jumping the gun.
Generally, any money you remove from your account before you turn 59½ may be subject to ordinary federal income tax
and an additional 10% IRS penalty for early withdrawal. Some states also assess penalties of their own.
That said, IRS early withdrawal penalties may be waived under certain conditions.4 Exceptions include:
- Your disability or death
- College expenses for yourself and your immediate family
- First-time home purchase (up to $10,000)
- Medical expenses greater than 7.5% of your adjusted gross income
- Health insurance premium payments if you are unemployed
- Qualified military reserve service
After 59½ it’s your call.
Once you reach age 59½, you may withdraw as little or as much as you'd like without the potential of IRS early
withdrawal penalties. But that doesn’t mean you have to take money out of your IRA.
Late withdrawals: Why not to miss the deadline.
You have until April 1 of the year after you reach 70½ to take your first Required Minimum Distribution (RMD),
and all subsequent distributions must be taken by December 31 of the calendar year. You can calculate your RMD
based on a number of factors, such as your age and the balance in your account(s), and you can choose to receive
it as a lump-sum payment or as a series of withdrawals. But make sure to meet the deadline and RMD threshold;
failure to take your RMD may result in an IRS excise penalty of 50% on the amount you should have withdrawn.
Roth IRA withdrawal rules.
In contrast to a Traditional IRA, contributions to a Roth IRA are made with after-tax dollars, so a different
set of withdrawal rules applies:5
IRS penalty-free withdrawals of earnings.
You can begin at age 59½—or earlier
if exceptions apply, provided it has been at least five years since the first tax year for which
you opened and funded any Roth IRA. (A separate five-year holding period applies to each conversion.)
No required distributions.
There are no RMDs from a Roth IRA. You can leave your
money untouched and allow it to keep growing.
You may withdraw your contributions at any time without taxes or IRS penalties.
Withdrawals of earnings made before you turn 59½ and meet the five-year holding period may be subject to
income tax and a 10% penalty. However, as with Traditional IRAs, exceptions apply.
1 Certificate of Deposit (CD) Interest Penalty may still apply for early withdrawal/redemption.
2 See IRS publication 590-B for additional information.
3Please consult with a tax or legal professional to understand how the potential tax and financial consequences of IRA withdrawals may affect you.
4 You may need to complete and attach IRS form 5329 to your tax return.
5 You may need to complete and attach form 8606 to your tax return.
This information is made available to you as a self-help tool for your independent use and is not intended to provide investment advice. We cannot and do not guarantee its accuracy and applicability to your individual circumstances. All examples are hypothetical and are for illustrative purposes. Please consult with a financial advisor for a solution suitable for your needs.