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General   |   Eligibility   |   Contributions   |   Distributions (Withdrawals)   |   Taxes   |   Rollovers

IRA: Distributions (Withdrawals)

  1. When can I withdraw money from my traditional IRA?
  2. Are there exceptions to the early withdrawal penalty?
  3. When do I have to withdraw my money?
  4. How much money do I have to withdraw from my traditional IRA once I turn 70½?
  5. How do I calculate required minimum distributions from my traditional IRA?

1. When can I withdraw money from my traditional IRA?

You can withdraw your money at any time, but if you are under 59½ you will have to pay a 10 percent penalty in addition to regular taxes on the amount you withdraw, unless you qualify for an exemption approved by the IRS. If your distribution includes contributions that were not deductible, the 10 percent penalty is not applied to that portion of your withdrawal.

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2. Are there exceptions to the early withdrawal penalty?

There are exceptions, in the following cases:

  • If you have medical expenses totaling more than 7.5 percent of your adjusted gross income
  • If you are unemployed and have received unemployment compensation for 12 consecutive weeks, and you need the money to buy health insurance
  • If you become disabled
  • If a beneficiary takes a distribution following the IRA owner's death
  • If you take the payments as an annuity, that is, a series of substantially equal payments over your lifetime or life expectancy
  • To pay for qualified higher education expenses
  • To pay certain qualified first-time homebuyer amounts
  • If the money is rolled over into a new IRA
  • If the money represents a return of nondeductible contributions

For more details please see IRS Publication 590 Individual Retirement Arrangements (IRAs), which you can find on the IRS Web site (www.irs.gov).

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3. When do I have to withdraw my money?

You must make a withdrawal from your traditional IRA by April 1 of the year after the year in which you turn 70½. The minimum amount you need to withdraw is based on your life expectancy or the joint life expectancy of you and your designated beneficiary.

Example: Jane Doe turns 70½ in 2005. Therefore, she must make a withdrawal from her IRA by April 1, 2006 for the 2005 tax year. For subsequent years, the required withdrawal must be made by Dec. 31 of the tax year. So, for the year 2006, she must make the withdrawal by Dec. 31, 2006.

If you don't make the required minimum withdrawal you will have to pay a penalty of 50 percent of the amount you were supposed to withdraw, but didn't.

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4. How much money do I have to withdraw from my traditional IRA once I turn 70½?

That depends on your IRA balance.

You must withdraw at least enough to fulfill the minimum requirement specified by the IRS. In IRS Publication 590 Individual Retirement Arrangements (IRAs) (available at www.irs.gov) the IRS spells out how to calculate your required minimum distributions (based on your IRA balance and your age). You have to withdraw at least this much, and you are allowed to withdraw more.

Briefly, here's how it works.

Suppose you are single and will reach age 70½ this year. This means you will need to start taking required minimum distributions next year. You can figure out your required distribution by looking at the IRS' life expectancy table in IRS Publication 590 to get your life expectancy. Divide your IRA balance by your life expectancy to find out your required distribution.

You may use a joint life expectancy only if you name your spouse as your sole beneficiary and your spouse is more than 10 years younger than you are. Using a joint life expectancy can help you extend your withdrawals. If you are using a joint life expectancy, you will use a different life expectancy table, but the same calculation.

Joint- and single-life expectancy tables and a more thorough discussion of how to calculate distributions are available in IRS Publication 590.

For advice on your specific situation you might want to consult a professional tax advisor.