When to Take IRA Distributions


Internal Revenue Service rules for IRAs say you should be at least 59 1/2 years old before taking a distribution. Early withdrawals may leave you paying extra penalties, taxes or both. In general, the longer you can leave money in an IRA, the better, since IRA dollars grow tax-free as long as they stay in the account. Once they are withdrawn, you lose any future earnings the distributed funds would have produced.

Early Distributions and Penalties

Early withdrawals from IRAs normally carry a penalty of 10 percent of the amount you take out on top of income taxes due. This rule applies to both traditional and Roth IRAs, though there are exceptions depending on the purpose for the early withdrawal. For example, you can pull money out early with no penalty to pay for qualified college expenses, to dispense with an IRS levy and for health insurance premiums if you lose your job.

Roth IRAs offer more leeway when making early distributions. You can take contributed funds out at any time without penalty. The IRS counts distributions as contributed dollars up to the total amount you have put in your Roth IRA since you opened it.

Withdrawing Excess Contributions

The IRS sets an annual limit to your annual contributions to IRA accounts. If you inadvertently put too much money in, you have until the date your tax return is due to take it out. If you don't remove excess contributions, the IRS charges a 6 percent penalty each year the extra money stays in the IRA.

Required Minimum Distributions

If you have a traditional IRA, you must begin making required minimum distributions the year you reach age 70 1/2. The amount of an RMD depends on your life expectancy and the amount of money in the IRA. Determine annual RMD amounts by completing the the IRS RMD worksheet. If you don't withdraw required minimum distributions, the IRS socks you with a 50 percent penalty on top of income taxes due on the money. When you have a Roth IRA, you don't have to make required minimum distributions, so you can keep the money in the account as long as you like.

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