IRA Withdrawal Tax Questions
IRA stands for Individual Retirement Account, which allows individuals to save for their retirement while taking advantage of certain tax benefits. However, if you do not know the IRA withdrawal rules, you may end up owing additional IRA early-withdrawal tax penalties.
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What is a Qualified Withdrawal?
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The IRS defines a qualified withdrawal from a traditional IRA as any withdrawal taken after the account holder turns 59 1/2 years old. For Roth IRAs, the withdrawal must be taken after the account has been open for at least five years and the person is at least 59 1/2 years old.
What Withdrawals are Taxable?
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Traditional IRA withdrawals are always taxable unless you have made non-deductible contributions to the account. In that case, the portion of the withdrawal that comes from non-deductible contributions is tax-free.
Qualified Roth IRA distributions come out tax-free. Non-qualified withdrawals of Roth IRA contributions are tax-free, but non-qualified withdrawals of earnings must be included as taxable income.
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What Causes Early Withdrawal Penalties?
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The IRS imposes a 10 percent early withdrawal penalty on the taxable portion of any non-qualified withdrawals. The IRS waives this penalty in limited circumstances, including if you have a permanent disability and medical expenses that exceed 7.5 percent of your adjusted gross income.
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