The big withdrawal rules for a traditional IRA are that an individual must be 59 and a half before they can begin withdrawing funds, they must start withdrawing after turning 70 and a half, and hardship cases may be able to withdraw funds early. Find out about the tax consequences of early IRA withdrawal with information from a financial adviser in this free video on retirement funds.

Expert: Roger Groh
Bio: Roger Groh is the founder of Groh Asset Management.
Filmmaker: Bing Hu…(read more)

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Individual Retirement Accounts (IRAs) are one of the most popular retirement investment vehicles in the United States. Traditional IRAs are one of the two types of IRAs, the other being Roth IRA. They are known for their tax-deferred benefits, allowing investors to enjoy tax deductions up to a certain limit for contributions made towards their retirement accounts.

Withdrawing funds from a Traditional IRA is subject to certain rules and regulations set by the Internal Revenue Service (IRS). Understanding these rules can help investors avoid unnecessary penalties and taxes.

Age Limit for Withdrawal:

The age limit for withdrawing from a Traditional IRA account without penalty is 59 1/2 years. If an investor decides to withdraw funds before this age limit, they will need to pay a 10% penalty in addition to regular tax payments on the amount withdrawn.

Required Minimum Distributions:

Starting from the age of 72 years, investors holding Traditional IRAs must take required minimum distributions (RMDs) annually. The amount of the RMD depends on the account balance and the life expectancy of the investor. RMDs must be taken before April 1 of the year following the year in which the investor turns 72; thereafter, the RMD deadline will be December 31 of each year.

Alternatives to Penalty-Free Withdrawals:

In certain situations, withdrawals before the age limit may not be subject to the 10% penalty. These circumstances include:

1. Higher Education Expenses: Withdrawals for higher education expenses such as college tuition fees or related expenses for children, grandchildren or the account holder.

2. Medical Expenses: Withdrawals for medical expenses that exceed more than 7.5% of the investor’s adjusted gross income.

3. First Time Home Buying: Withdrawals for first-time home buying which is defined as buying a primary residence for the first time with the withdrawal being utilized within 120 days of the purchase.

4. Disability or Death: Beneficiaries of Traditional IRA accounts left behind by someone who passed away or for account owners who become disabled.

Conclusion:

Traditional IRA accounts are designed to help investors save towards their retirement goals. They come with tax-deferred benefits that protect investors’ funds from taxes until withdrawal. However, withdrawal rules can incur penalties and taxes if not followed properly. To ensure investors can enjoy their retirement savings, familiarizing themselves with the withdrawal rules can ensure no unnecessary taxes or penalties are levied with the help of a financial advisor.