IRA Withdrawal Rules

Are you confused by your IRA withdrawal rules? They are actually quite simple. Traditional IRA rules are easy to understand, and being aware of them can save you tens of thousands of dollars in taxes and early withdrawal penalties. There are just a few things to consider when contemplating making an early withdrawal from your IRA retirement account. Generally, withdrawing money from your traditional IRA before you are of retirement age can have several negative consequences. First, you will have to pay twenty percent of your individual retirement account to the IRS in penalties and taxes. Second, you will have to pay income taxes on any earnings you have made through the account. Altogether, you can count on paying thirty-five or even fifty percent of your IRA withdrawal. This can take a huge chunk out of your investment principal and completely wipe out your gains. If you have a Roth IRA, you skip the taxes but still will be paying about twenty percent of your savings.

If this sounds harsh, you will be happy to know that there are a few exceptions to these rules. There are some circumstances under which the Internal Revenue Service will allow you to take money from your IRA without punitive penalties and overtaxing. The most common of these is disability or death. If you can prove that you have been permanently disabled, you will be allowed to use your investment funds before official retirement age. IRA withdrawal rules will allow your beneficiaries to receive your funds immediately should you pass away instead of waiting until the year in which you would have retired.

If a judge in a divorce or custody case has ordered you to give half of your retirement assets to a spouse or ex-spouse, you can do this without penalty as well. It is unfortunate to lose this huge portion of your much needed retirement funds, but at least you can avoid paying penalties as well.

If you have out of pocket medical expenses from an illness or injury that exceed 7.5 percent of your annual income, IRA withdrawal rules will also allow you to take the money you need to pay off your bills. You will, however, be required to itemize your deductions when you file annual taxes.

Last, you can take money from your IRA plan before official retirement age if you are fifty-five years of age or older and have elected to retire early. It’s important to talk to a professional financial advisor before taking this step, because it is virtually impossible to go back. Retiring even a few years early can reduce your retirement funds by a huge amount. There are many things to be considered before opting for early retirement, and IRA withdrawal rules and penalties may be the least of your worries.

As with all financial decisions, the decision to make an early withdrawal from your IRA is a serious decision with grave consequences. There are many reasons to avoid making early withdrawals, and only a few circumstances in which it is truly the right decision.