When Can I Draw Out My IRA?

by Bob Haring

    An individual retirement account, or arrangement as the Internal Revenue Service now calls it, is a way to save money for retirement and get some tax benefits. With traditional IRAs, you can deduct contributions from taxable income, but you will have to pay takes when you take money out. Roth IRA contributions are taxed before they're put in and so are exempt from taxes when withdrawn.

    Early Withdrawal Penalty

    You can take money out of either a traditional or a Roth IRA at any time, but if you're younger than 59 1/2 withdrawals will be hit with a 10 percent penalty unless you can claim some hardship. Once you reach that magic age, you can take out as much money as you want, in a lump sum or periodic payments, all subject to specific tax rules.

    Equal Payments

    One way to withdraw money from a traditional IRA early without the tax penalty is to take "substantially equal periodic payments." This is a withdrawal plan that draws out a certain percentage of your contributions each year, based on an IRS formula for the amount in your fund and your life expectancy. You will only be taxed on the amount you draw out.

    Hardship Withdrawals

    You can withdraw money from a traditional IRA without penalty before 59 1/2 if the distribution is due to death or disability, for medical expenses over 7.5 percent of your gross income, for educational expenses for you or a dependent or for a first-time home purchase. You can draw money out of a Roth IRA at any time after it has been in place for 5 years.

    Another Option

    You can withdraw IRA contributions tax-free at any time up until the date for filing your tax return, but you can't deduct those amounts from your taxable income. If you put $5,000 into your IRA in June, for instance, you have until the following April 15 to take that money back without any tax or penalty. You can withdraw any interest it earned without penalty, too.

    Mandatory Withdrawals

    If you haven't drawn out of your traditional IRA by the time you are 70 1/2, you will have to start making required minimum withdrawals, based on your life expectancy and how much is in the IRA. The IRS has three tables used to calculate these RMDs, based on marital status and other factors. Roth IRAs are exempt from minimum withdrawals.

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    About the Author

    Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.

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