IRA Withdrawal Rules After Retirement
An Individual Retirement Account is a tax-deferred investment vehicle to help consumers supplement retirement savings. The Internal Revenue Service deems age 59 1/2 as the retirement age when you can begin to take IRA withdrawals without a 10 percent penalty. Whether you retire at this age or later, the withdrawal rules are the same from this threshold on.
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Normal Traditional Distributions
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A normal distribution from a traditional IRA is any distribution taken after age 59 1/2. For a traditional IRA, the distribution is added to adjusted gross income when filing tax returns. A 1099-R is generated by the IRA custodian and sent to both the IRA owner and the IRS. The IRA owner records the distribution on Line 15 of personal income tax returns Form 1040.
Normal Roth Distribution
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Distributions from a Roth IRA must also meet the age threshold of 59 1/2. There is an additional requirement to qualify a normal Roth distribution, the five-year rule. A Roth IRA must be owned for at least five years to get tax-fee distributions. This means that a 58-year-old who opens a Roth IRA for the first time cannot access the Roth money until age 63. Normal distributions from a Roth IRA do not generate a 1099-R and are tax free. Early distributions are added to income and may be penalized 10 percent.
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Required Minimum Distributions
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A traditional IRA has a Required Minimum Distribution mandated by the Internal Revenue Service. Once a traditional IRA owner reaches age 70 1/2, a percentage of the account must be taken out each year. The first RMD must be taken by April 1 in the year following the year in which the IRA owner turns 70 1/2. Subsequent RMDs must be taken by December 31 each year. The amount of the RMD is based on a life expectancy factor. The IRA owner may use a younger spouse's age as part of the factoring.
Roth Considerations
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There is no RMD requirement for Roth IRAs. Roth contributions don't get an income tax deduction when funding the account. This means the IRS has already received taxes on the contributions and isn't expecting to collect more during the IRA owner's lifetime. The Roth owner may also continue to make contributions to an IRA if he decides to go back to work past the age of 70 1/2. Traditional IRA owners don't have this option.
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