How to Withdraw From an IRA
Individual retirement accounts (IRAs) are the only nest egg for the future for many people. One of the ways the government ensures IRA investments stay untouched is by charging a penalty for early withdrawal. There are some circumstances, however, that allow withdrawal without penalties.
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Instructions
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Contact your funds manager. Whether it’s an employer-sponsored plan or a plan set up through a financial adviser, you can learn the details of your IRA through the plan's manager or representative. This person will inform you of the 10 percent penalty for early withdrawal on any IRA investment. Early withdrawal constitutes any withdrawal that was made before the investor turns 59 1/2.
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Consider the reason for the withdrawal. There are several circumstances under which a penalty will not apply. These include tuition to an IRS-approved institution. The school may be private, public or nonprofit, as long as it meets federal student aid program requirements. An investor may also withdraw penalty-free from an IRA for a first-time home purchase up to $10,000. If an investor’s spouse also has an IRA, an additional $10,000 may be withdrawn from that plan as well. Withdrawals from an IRA can also occur for excessive medical expenses that are not reimbursed, to pay medical insurance premiums while unemployed, in cases of permanent disability or as part of a distribution in the case of the investor’s death.
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Complete IRS Form 5329. You should complete it any time you make a withdrawal for proper accounting of tax records. Failure to complete this form may lead to a financial penalty with the federal government.
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Determine the type of IRA. Investors with a Roth IRA must have the IRA for 5 years before they can withdraw as a first-time home buyer without penalty. Ownership of a Roth IRA for less than 5 years opens the investor to normal penalties for early withdrawal. Traditional IRAs are not subject to the same time frame.
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Consult with a financial adviser. Advisers should review and approve any decision to make a large-sum withdrawal from an IRA. These advisers can give long-term advice on how the withdrawal will affect the owner’s total investment portfolio. Withdrawals on IRAs have legal and quality-of-life issues that must be addressed.
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