Withdrawal Rules

With Traditional IRAs, you pay no taxes until you begin to withdraw money. If you’re over age 59½, there are no IRA withdrawal restrictions; if you’re under age 59½ and withdraw money from your IRA, you may face a penalty. Once you reach age 70½, withdrawals are mandatory.

What are the penalties, and are there exceptions?

The federal government charges a 10% penalty for early IRA withdrawals. A state tax penalty may also apply to early withdrawals. You may be able to avoid a penalty on early withdrawals if one of the following situations applies to you:

• First-time home purchase. You may be able to withdraw funds for certain home purchases, subject to a lifetime limit of $10,000 in pre-tax dollars. You must use the money for this purpose within 120 days of withdrawal.
• Qualified educational expenses. There’s no penalty on withdrawals if you use your funds for certain educational expenses for yourself and your immediate family.
• Death.
• Disability. If you’re disabled, you can withdraw IRA funds without penalty.
• Unreimbursed medical expenses. Withdrawals are allowed without penalty if you use the funds to pay unreimbursed medical expenses in excess of 7.5% of your adjusted gross income (AGI).
• Health insurance. If you’re unemployed for at least 12 weeks, you may withdraw funds to pay health insurance premiums for yourself, your spouse, or your dependents.
• Substantially equal periodic payments. You can also avoid an early withdrawal penalty if you elect to receive your funds on a regular distribution schedule, which the IRS calls “substantially equal periodic payments.”
• Involuntary distribution due to an IRS tax levy. IRS Form 5329 explains how to claim your penalty exception.
• Qualified reservist distributions. Members of the National Guard or reservists can take penalty-free distributions if they are called to active duty for at least 180 days. Some restrictions apply.
  

At age 59½, there are no withdrawal restrictions.

Once you reach age 59½, you can withdraw funds from your Traditional IRA without restrictions or penalties. But keep in mind:

• Your deductible contributions and earnings (including dividends, interest, and capital gains) will be subject to ordinary income taxes.
• Once you reach age 70½, you must start taking Required Minimum Distributions (RMDs) each year from your Traditional IRA.

At age 70½, withdrawals are mandatory.

On April 1 following the year in which you turn 70½, you are required to start taking Required Minimum Distributions (RMDs) from your Traditional IRA on an annual basis to avoid tax penalties.