Early Withdrawals From Your Traditional IRA
Withdraw As Intended or Pay Taxes & Penalties
Because IRA funds are to be used for retirement, the government discourages you from taking IRA distributions before you reach age 591⁄2. Consequently, any taxable distributions you take from an IRA before reaching age 591⁄2 are generally subject to a 10% early distribution penalty tax.
Q: When can I withdraw assets from my Traditional IRA?
A: You can withdraw funds from your Traditional IRA at any time. To avoid a 10% early withdrawal tax penalty, however, you should not withdraw funds unless at least one of the following applies:
- Attained age 59 1⁄2
- Become totally disabled
- Received your distribution in substantially equal installment payments over your
life expectancy or the life expectancy of you and your beneficiary
- Certain medical expenses
- To purchase health insurance if unemployed
- Certain qualified higher education expenses
- First time home buying expenses capped at $10,000
If the 10% early withdrawal penalty is applicable, it is in addition to ordinary income tax. Required minimum distributions must begin no later than April 1 following the year in which you attain age 70 1⁄2.
Contact your Wealth Advisor for more details.
Q: How do I take distributions from my Traditional IRA?
A: Benefits may be paid in a lump sum, periodic installments or a lifetime annuity. These distributions are taxed as ordinary income in the year you receive them (plus the 10% early withdrawal penalty, if applicable).
Q: Who gets the money if I die before all benefits are paid?
A: You may name a beneficiary to receive these funds. The beneficiary will determine the method of payment and will pay income tax on the money as received. However, your beneficiary will receive these benefits without penalty.
Q: If my Traditional IRA holds deductible and nondeductible contributions, can I make a tax-free withdrawal from the nondeductible portion?
A: No. You may not specify that your withdrawal be made only from nondeductible contributions on which you have already paid taxes. Instead, withdrawals will be taxed in the same proportion that nondeductible contributions bear to total Traditional IRA account values. Thus, you will owe taxes on a portion of every withdrawal.
Check with your tax advisor
Under certain circumstances, an individual under 591⁄2 may take distributions from his or her IRA without incurring a 10% early distribution penalty tax. Distributions are not subject to the penalty tax if taken due to death or disability of the IRA holder, or if taken under an exception discussed above. Before taking any distribution from your IRA, you should consult with your tax advisor.
J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA & SIPC. Hilliard Lyons does not offer tax or legal advice. Please consult your tax advisor or attorney before making any decision that may affect your tax or legal situation. ©2018 All rights reserved.
J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA, & SIPC