Depending on the type of account you have, there are different rules for withdrawals and distributions. If you have a Traditional, Rollover, SEP, or SIMPLE IRA and are nearing age 70½, it's essential to learn about Required Minimum Distributions (RMDs). Roth and Inherited IRAs have their own rules.
Before you decide to take money out of your Traditional IRA, keep in mind that there are age restrictions for making a penalty-free withdrawal. The funds in your Traditional IRA account are meant to benefit you more in the long run, and withdrawing them early can minimize the potential gains on your earnings. You will also have to pay income taxes on the amount you distribute, as money in a Traditional IRA is tax-deferred.
At a glance: taking money out of a Traditional IRA
Age 59 and under
10% withdrawal penalty and taxes apply.
The penalty may be waived for:
- Unreimbursed medical expenses.
- Higher education expenses.
- First-time home purchase (up to $10,000).
Age 59½ to 70
No withdrawal penalty but taxes apply.
- Withdraw money penalty-free when you turn 59½.
- Withdrawals are taxed as ordinary income.
- Mandatory withdrawal at age 70½.
Age 70½ and over
Annual withdrawal required and taxes apply.
- Annual withdrawals are called Required Minimum Distributions (RMDs) and are taxed as ordinary income.
- A 50% penalty applies if you don't take an RMD.
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