Understanding IRA Withdrawal Rules

May 7th 2016

Initiate a Withdrawal

You may initiate a withdrawal from an IRA at any time by contacting your financial institution to request a distribution. The IRS assesses a 10 percent penalty on withdrawals made before age 59 1/2 and a 50 percent penalty on required minimum distributions not initiated after age 70.


Distributions from an IRA count as taxable income. Depending on your income tax bracket, you may pay 25 percent or more of your distribution when you file your annual taxes, although there are exceptions to the penalties. Some taxpayers fill out Form 5329 to pay additional taxes on qualified retirement accounts, and some distributions on Roth IRAs do not count as taxable income.

Exceptions to Early Withdrawal Penalties

You may not have to pay the 10 percent penalty for early withdrawals if you meet one of several criteria, including a first-time home purchase, a qualifying higher-education expense, unreimbursed medical expenses, and disability or health insurance purchases if you do not work. Taxpayers generally note these expenses as itemized deductions on Form 1040 Schedule A.

Roth IRAs

If you have a qualified distribution from a Roth IRA, you do not pay taxes or penalties so long as the money has been in the account for a minimum of five years, and you meet certain criteria. Such criteria might include being of age 59 1/2 or older, a disability claim, death or a first-time home purchase. A Roth IRA does not have a required minimum distribution at a certain age.

Required Minimum Distributions

The IRS assesses a 50 percent penalty if you do not make a required minimum distribution in the year you turn 70. For example, if you should withdraw $500, and you do not do so, the agency takes $250 as a penalty when you file taxes the following year. You face similar penalties for every year thereafter that you do not initiate a withdrawal. The reason for the penalty is that the IRS collects a percentage of the distribution when you file your taxes, and the agency does not want you to avoid paying those regular taxes by keeping money in an IRA longer than mandated.


When you withdraw money from an individual retirement account, you must follow a set of rules established by the Internal Revenue Service or your state department of revenue. Taxpayers may contribute annual maximum amounts to IRAs, which they can withdraw at any time. However, certain penalties apply for early withdrawals.

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