IRA Withdrawal Process
An individual retirement account, or IRA, helps you save for retirement. There is no age limit for when you can take assets out of an IRA, but distributions prior to age 59 1/2 trigger a 10 percent tax penalty. Understanding and following distribution protocol helps reduce tax liabilities.
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Determine How Much
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Before you take any money out of the IRA, figure out how much you need and what the potential tax liability is. Normal distributions from traditional IRAs, money taken out after you reach age 59 1/2, are added to income. Normal Roth distributions, money taken out of a Roth owned for five years and after age 59 1/2, have no tax consequence. Distributions prior the age and time threshold have a 10 percent tax penalty assessed.
Contact Custodian
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When you know how much you need, call or visit a representative from the IRA custodian to get a distribution form. You can call the customer service number on your IRA statement to request this, but it will probably be processed faster if you walk into a branch office and complete the form in person. Distribution forms first ask you to verify your name, address, Social Security number and date of birth. Write in the amount you want to take out and designate whether you want to have federal tax withholding taken from the distribution. You do not need to designate normal distributions, but if you are taking an early distribution and requesting a penalty waiver, include this on the form. If withholding taxes are required in early distributions, ask for a net distribution. You get the amount you need after fees and taxes are taken. Sign and submit the form, returning it to the custodian.
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Recording Distributions
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Depending on the custodian, it can take anywhere from an hour to 10 days to process your request. A bank IRA custodian can generally complete the transaction within an hour, while a brokerage firm may need to sell securities and wait for sales to clear, taking longer. Once you have the check, deposit and use the funds as you intended. When you file your income tax return, Form 1040, add the income to Line 15. For anything other than a normal distribution, complete Form 5329. This records early distribution penalties as well as waivers.
Considerations
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The 10 percent early withdrawal penalty is waived under certain circumstances. IRA owners can use up to $10,000 for a first-time home purchase or remodel. An owner can also use the IRA to fund a college education. These waivers exist for an IRA owner even if the money is used for a spouse, a child or grandchild.
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