Your individual retirement account is yours to use as you see fit -- the government allows IRA withdrawals at any time. However, as an IRA is meant to be a way for you to save for retirement, any money you take out before retirement age could trigger a penalty, in addition to income tax. As you age, the government will not only allow an IRA withdrawal, but will require it from you.
One of the benefits of an IRA over other types of retirement plans, such as 401(k) plans, is that you don't need a qualifying financial emergency to withdraw funds before retirement age. While this may not be a wise move for your retirement savings, it does add a layer of flexibility not offered in other plans. This flexibility does come at a price, however. The IRS assesses a 10 percent penalty on early withdrawals from an IRA, defined as distributions taken before age 59 1/2.
Regardless of your reason for taking an IRA withdrawal, the government will not grant you a waiver from your tax obligations. Since IRAs are funded with pre-tax money, none of the money in an IRA has ever been taxed. When you take money out of your IRA, you'll owe ordinary income tax on the distribution.
After you reach age 70 1/2, the government will require you to start taking money out of your IRA. You are allowed to take out your entire IRA balance, if you so desire, but the minimum requirement is typically only a small percentage of the value of your IRA. The IRS computes your minimum required distribution by dividing your account balance by your life expectancy. Failure to take a sufficient minimum distribution results in a seriously penalty of 50 percent of the undistributed amount.
Roth IRAs are a special type of IRA with different distribution requirements than other IRAs. Since contributions to a Roth IRA are made on an after-tax basis, rather than on a pre-tax basis as with traditional IRAs, distributions are generally not taxable. Since no tax revenue is generated from distributions, the government does not require distributions from a Roth IRA, even after age 70 1/2. As with other IRAs, the government does allow Roth distributions at any time. However, the 10 percent early distribution penalty does apply to Roth distributions before age 59 1/2.
John Csiszar has written thousands of articles on financial services based on his extensive experience in the industry. Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to his online work, he has published five educational books for young adults.