The Internal Revenue Service has strict requirements on the taxable status of IRA withdrawals, including in some cases when you must begin withdrawing money from an individual retirement account. The purpose of an IRA is to allow a tax-advantaged way for your money to grow until you withdraw it in retirement. Some investment gains held longer than one year are taxable at a special capital gains rate of 15 percent. However, any taxable IRA withdrawals or disbursements are taxable as normal income, regardless of your age.
Traditional IRA withdrawals are taxed as income at your nominal tax rate. For example, if you are in the 25 percent tax bracket and you withdraw $20,000 from your account for living expenses this year, you will pay $5,000 in federal income tax on your withdrawal.
Roth IRA withdrawals are not taxed at any level when withdrawn at age 59 1/2. The arrangement with a Roth is that you receive no tax deduction when you put the money in the IRA and the money grows tax-free while it is in the account. A Roth IRA offers a way to save for retirement and save on taxes when you retire.
You can make nondeductible contributions to an IRA account, particularly if you are not qualified to make a regular contribution to a traditional or Roth IRA. When you turn 59 1/2, disbursements of the contributions you made to the IRA are not included in your income, but any earnings you deduct are considered income and taxed at your normal income tax rate.
You do not have to begin withdrawing from your traditional IRA at age 59 1/2. However, you must begin taking withdrawals from a traditional IRA when you reach 70 1/2. There are no minimum required withdrawals for a Roth IRA; you can leave the money in the account as long as you want.