For some reason I get this question a lot, so I thought I’d provide a little clarification on IRA withdrawal rules.
Individual Retirement Arrangements or IRAs were designed to provide an opportunity for folks to save for retirement on a pre-tax, tax-deferred basis. In other words, the money grows without having to pay any taxes on the gains.
Of course, with an IRA you have to pay the Piper at some point in time. That means when you get into retirement and start your IRA withdrawals, you’ll have to pay taxes. This can create a “tax-time bomb” in retirement, but I won’t get into that here. Speaking of tax time, if you’re going to file your taxes with TurboTax, make sure you look up some TurboTax discount codes before you file.
The short answer to when you can take your IRA withdrawals is – any time! 
People are often shocked by that answer, but it’s true.
You can access your money through an IRA withdrawal any time you’d like, but you just better be aware of the tax and penalty ramifications.
If you take your IRA withdrawal after age 59 1/2 you won’t have to worry about any penalties, just the taxes.
There are some exceptions to taking money out before age 59 1/2, so let’s take a look at an early IRA withdrawal:
Your IRA Withdrawal Prior to Age 59 1/2
The general rule is that if you take an IRA withdrawal before 59 1/2 the IRS whacks you with a 10% penalty. So, ideally you need to wait on your IRA withdrawal until you reach that age.
As with most IRS rules, there are some exceptions:
IRS publication 590 lists these exceptions to the 10% penalty for early IRA withdrawals:
- You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
- The distributions are not more than the cost of your medical insurance
- You are disabled.
- You are the beneficiary of a deceased IRA owner.
- You are receiving distributions in the form of an annuity.
- The distributions are not more than your qualified higher education expenses.
- You use the distributions to buy, build, or rebuild a frist home.
- The distribution is due to an IRS levy of the qualified plan.
- The distribution is a qualified reservist distribution
These exceptions to the early IRA withdrawal rules have some qualifiers on them so it’s important to look at the IRS publication to make sure you fit into one of these categories before you take the money out.
For example, the exception that says you can take the money in the form of annuity – basically what the IRS means here is that you must take “substantially equal period payments” – in other words a set amount per year for either a) five years or b) til 59 1/2, whichever is longer.
Also, be aware that these exceptions are for the 10% premature distribution penalty NOT taxes! You still have to pay taxes on any IRA withdrawal.
Your IRA Withdrawal After Age 59 1/2
Reaching the magic age of 59 1/2 is one retirement milestone you should look forward to.
Once you reach this age, you can begin to take your IRA withdrawal penalty free! At this point you can take out as much as you want, whenever you want.
Again, there is no escaping the taxes (unless of course you open a Roth IRA and make sure you’re aware of the 2013 Roth IRA contribution limits) so just be aware that every dollar you pull out will be as if you earned that money for the year – it counts as ordinary income.
By the way, you literally must reach age 59 1/2 – not 59, 5 months and 15 days. You can take the money any time on the day you turn 59 1/2 or after.
Just because you turned 59 1/2 doesn’t mean you have to take the money out though. You may not want to. If you’ve done a good job establishing other sources of income, you may decide to wait.
Remember that the 2013 IRA contribution limit is $5,500, up $500 from 2012!
Your IRA Withdrawal at Age 70 1/2
If you do decide to wait however, you won’t be able to leave that money in your IRA forever.
At age 70 1/2 you will be required to take a minimum distribution ( also known as RMD, which uses a formula set up by the IRS to determine the amount) and pay taxes on those withdrawals.
But, what if you don’t need the money and you’d rather wait? That’s fine, but just know that good ol’ Uncle Sam will uppercut you with a 50% penalty on the amount that should’ve been distributed along with the normal taxes due.
They want to make sure they get their tax revenue some how. So be aware that sooner or later you HAVE to take money out of your IRA.
So remember, you can always take an IRA withdrawal, but you need to know the right rules and regulations to determine when a distribution will be right for you.
This was a post I originally did for ChristianPF.com and thought I’d share it here as well.
IRA Withdrawal Rules – When Can You Withdraw Your IRA?
10 Money-Saving Tips to Help You Stash $10,000!
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7 Most Important Habits That Rich People Use to Build Wealth
Should You Give Money to a Homeless Person?
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Nice summary of when you can gain access to those retirement funds. Here’s hoping no-one will or has to access these funds until they need to during retirement!
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Thanks Bible Debt – yeah let’s hope that there are other areas to access money prior to 59 1/2!
can you take some money out if you are disabled?
Peg, yes you can, but you need to make sure you “code it” correctly so that when you get your 1099 it specifically says for a disability. See the IRS website (http://irs.gov) for specific info.
After 59 ½ you can withdraw penalty-free but, can you still contribute and withdraw some if you choose to do so?
Are the rules any different this year since a distribution was not mandatory last year?
Sorry confused, the rules are not any different this year. RMDs are required again for this year.
That’s an interesting point about how you are required to make a minimum distribution at age 70! I wasn’t aware of that!
Uncle Sam needs his tax revenue!
Great article. Succinct. Practical. Exactly what I needed to know. Thank you Jason.
Can i withdraw money from my wifes traditional IRA, and make a contribution to my ROTH IRA? and use the deduction?
How many times can you withdraw from your IRA if you are disabled and how do you prove your disability?
Anne, great question. There is no limit on the number of times you can withdraw.
You can avoid the 10% penalty if you are not yet age 59 1/2 if you are disabled. The IRS says, “You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.”
When you call your custodian to request a withdrawal, be sure to tell them it’s because of a disability to ensure that they code the distribution correctly also.
If I roll over my 401K into a rollover IRA when leaving my job at age 57 do I then have to wait until age 62 (5 years later) to be able to make a penalty free withdrawal? Will this restriction effect withdrawals from a traditional IRA that I have already had open for more than 5 years?
Gkat, if you directly roll over into a rollover IRA, then the rule is that you can take it out penalty free at age 59 1/2. No restrictions on the rollover or Traditional IRAs. The 5 year rule is for Roth IRAs.
As always, consult a certified tax advisor before you make any decisions.
You may only contribute if you have earned income, and you can withdraw at any time after 59 1/2 without penalty.
Log, you cannot withdraw money from your wife’s IRA – she needs to withdraw the money from her own account. Secondly, you do not get a deduction for contributions to a Roth IRA.
I find it interesting that virtually no financial consultants, when asked this same question, bother to tell people about the rule of “55″. Simply put the IRS says that the magic number of 59 1/2 means absolutely zip squat unless you continue to work for the company. In reality, if you retire, are fired, or leave the company’s employ for ANY reason during or after the calendar year of your 55th. birthday, you can make whatever withdrawals your plan directors allow you to make without any additional penalties, other than paying the normal income tax on the amount that was put in pre-tax. If your birthday is December 31, and you retired the previous January 1st, working just one day into the year and 363 days prior to your 55th. birthday, you still will not be hit with the 10% penalty. It’s the law.
Michael, I think you’re right many consultants don’t mention it enough; however, this post IS on IRA Withdrawals, not 401k withdrawals.
The age 55 exception is something I’ve mentioned on this site in other posts:
http://www.redeemingriches.com/2009/09/02/7-milestone-birthdays-that-affect-your-retirement/
http://www.redeemingriches.com/2010/04/01/retirement-savings-baby-boomer/
http://www.redeemingriches.com/2010/06/28/401k-rollover/
I withdrew my ira, then in a few day put it into another ira combining them. I received a form 1099-R
with code 7, normal distribution. What form do I need to send to the IRS to let them know I do not have the money?
While the IRS says you must take a specified amount of money out of your traditional IRA or other similar retirement plan, that doesn’t mean you have to spend it.
How often can you withdraw money from IRA once you have reached 59 and a 1/2. Can you do it from time to time as needed? Or do you have to schedule withdraws on an on going basis?
Once you reach age 59 1/2 you can withdraw as much or as little as you’d like.
I am 72.5 and my bank charged me early withdrawal penalty when I withdrew $2,500 from my IRA. When I questioned the charge they told me it was due to changes in regulation D and that the penalties will stop when I reach age 73.5.
Dominick, that’s simply untrue. They may have charged you an early withdrawal penalty from a specific type of account (like an annuity or CD), but there is no IRS penalty if you’re over age 59.5. I would press them further and have them provide documentation.
cool, eh? I wish we have one of those here
cool!
Uncle Sam would definitely want his revenue – I mean, why else would they continue IRA in the first place, without them getting at least a little benefit for all their trouble of keeping your cash, ayt? On a more serious note, this is why more “capable” people would rather withdraw from their IRA at 59 1/2 and invest onto something else if they still want to earn, rather than keeping it untouched. I personally think that 50% uppercut will hurt – A LOT.
The Federal government definitely wants to collect their share before we kick the bucket and to that effect they make IRA withdrawals mandatory when we reach 70.5 years of age. The problem I am having is that although I am in my mid 70s the BANK is charging me a penalty for early withdrawal, allegedly, in accordance with a new regulation D that allows banks to do that if they wish. Apparently some banks are taking advantage of the new “regulation” (sounds to me more like a license to steal) while others are not charging the penalty. My IRA is in a major bank btw.
I have been legally disabled since 2001 and draw a social security check as being totally disabled and another compensation from an insurance company. If I withdrew my IRA and put it into CD’s would I have to report this to my insurance compensator? If so, what do I need to do to withdraw my IRA?
Pappy, I’m not sure what your insurance compensator requires of you. You’d have to contact them directly. Your IRA will be considered income from an IRS standpoint.
Generally, just contacting the company that holds your IRA is all it takes.
if you have multiple iras, can the rmd be calculated for the total value and all taken from one account or must each ira be subject to its own rmd?
Look at
tax rates last 100 year..link below. 60-90% upper bracket average in majority
of the past. Today only 35%. Taxes are
going up folks. I know this sounds crazy,
but I would take the tax penalty now and move money to cash and out of
IRA. 401k ok up to what company matches
only! Wait for interest rates to go up.
No bonds….it’s a bubble now.
Maybe diversify small amount to REITs earning 6% (PDM). Also if terrorist attack happens or global
crises and stock market crashes..you can take the write off..you can’t in
IRA’s! IRA are a marketing scheme..and
Financial companies have brain washed you think you must have one…..Has your
financial advisor every told you the possibilities of these tax issues later or
losses that you can’t write off when you retire? Or the market crashing and you are out all
your retirement and no write off or recouping it??
Upper Tax
Bracket History> Today it is only
35%!
http://www.ntu.org/tax-basics/history-of-federal-individual-1.html
Great question. You must add up all RMD amounts, but you can take the total amount from one IRA. As always, be sure to consult your tax advisor.
Regarding >59 1/2 withdrawals: For Example, if my spouse and I have Social Security income of $20,000 total, and our RMD withdrawal amounts to $12,000 per year, what Net Taxable income will we be paying tax on?…..$32,000 less all applicable deductions allowable on 1040 forms? Thus, am I correct in assuming that if we have $32,000 (estimated) in allowable deductions, then our Net Tax. Income would be ZERO (0.00)?……Or, do we get taxed on first dollar IRA withdrawals; e.g., $12,000 x 15% tax bracket?…Please give responsible tax/accountability reply. Thank you…MMT
MMT, great question and very wise assumption. As always, I recommend you consult a tax advisor regarding any tax advice. However, you would be correct in your situation except that if its Social Security income then its treated a little different.
Only a certain amount of social security income is counted. That might be a good post to do to clarify.
My husband has applied for disability because he had to have his left leg amputated below the knee. Because of this my husband will be out of work for at least 3 months. Unfortunately the disability he will receive in only enough to pay our bills, but not our mortgage. Because of this we had to withdraw $8,000 from our IRA so we can pay our mortgage and not lose our house while he is on disability. Does this mean that we will not have to pay the 10% penalty? How do we let the IRS know this?
For early withdrawal prior to 59 1/2, is there any limit to the number of times one is allowed to withdraw per year from the same IRA account as long as paying the 10% penalty each time?
I am older than fifty-nine and one half and I have substantial earned income. If I put $6000 into an IRA before tax day this year and reduce last year’s income, do I have to leave the money in the account for any specified period of time. It seems to be an easy way to postpone payment of taxes on $6000 for a year. I think I must be missing something.
Can u withdraw for education expenses?
I was laid off 3 years ago and have been unemployed. Since being laid off, I have turned 60 years old. With employment prospects for someone my age being dim to non-existent I am compelled to consider taking withdrawals from my old rollover IRA account. The current market value of investments in this account is worth less than 60% of the original contributions.
Is it true that, not only do I have to pay tax on withdrawals, I can not deduct this loss from the taxable amounts withdrawn?
I am on SS disability. I need to pay for my son’s college. Can I withdraw from my traditional IRA and not pay the 10% penalty if I “code” it right?
I will be 70 1/2 this year. I have a rather large Ira and a small one. Do I have to take out the required amount from each of the IRA’s or may I total up the amount I need to take from both accounts and just withdraw it from one account?
I WILL BE 74 IN AUG. NEVER HAVE TOUCHED MY IRA SNCE 59 1/2. PD IRS 100.00 FOR EACH $ 1,000.00. NEED TO KNOW ABOUT NEW LAW AT MY AGE. THANKS
I am 75 yr old and have taken by Minimal distribution each year. This year when I tried to cash in a CD from a credit union, I was told that there is a penalty charged for cashing it in prior to maturity date.
I thought there was no penalty for early withdrawal when you are being forced to do so by federal govt rules.
Which is correct?
I have reached the 59.5 age. My IRA contributions in previous years were all made Post-tax in a non-deductible IRA, due to my income.
I’m thinking I only have to pay tax on any IRA account earnings when I take withdrawls from the IRA. Does the end of the year 1099 on the distributions indicate what portion of the withdrawl is taxable? How does that work?
Thank you so much for your blog!!
how many times can you withdrawl from your IRA?
Want to roll ESOP into an IRA, thing is I want to buy a family member out on inheritance property, can I do that with early withdrawal without 10% penalty?
If one is born 4/14/1953 and wishes to tap an IRA without penalty, how does one figure the exact date one is 59-1/2 to avoid the 10% penalty?
My husband was 62 yrs. old when he passed away in August this year. I retired last year to
stay home and take care of him. I will be 59 yrs old in Feb. next yr. Are there any exclusions when someone dies? I need to withdraw money but don’t want the penalty.
Thanks
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