IRA Withdrawal Rules
There are rules that you need to follow when it comes to withdrawal from an IRA. If you withdraw funds from your IRA before you become eligible, you could lose some of the tax benefits and/or tax deduction you have received. Therefore, any withdrawal from an IRA should be made after a lot of thought, and you should only resort to this if you have no other option available. |
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IRA Withdrawal Rules:
Under normal circumstances, you have to pay a penalty of 10 percent if you withdraw money from your IRA before attaining the age of 59.5 years. This age is when a person can take distribution from an IRA. In addition, you may be liable to pay federal income tax on the amount that you have withdrawn. However, there are some exceptions where the 10 percent penalty is not levied. These exceptions are as follows:
- The account holder dies and the money in the account is paid to the beneficiary
- The account holder becomes disabled
- The account holder withdraws money to pay for child support or alimony on orders of the court
- The account holder uses the money to pay for higher education of a family member
- The account holder uses the money to purchase a first time home. In this case the maximum amount that can be withdrawn is $10,000.
- The account holder withdraws less than the allowed amount to pay for medical expenses
- The account holder starts to make significant payments at regular intervals to the account
A person who does not want to withdraw money from his IRA after attaining the age of 59.5 years can wait to do so. However, the minimum required distribution should be started annually once the person reaches the age of 70.5 years. In case the person does not withdraw the minimum distribution amount, the person would have to pay a penalty. This penalty is 50 percent of the minimum required distribution minus the amount withdrawn.
The required minimum distribution is calculated by taking the account balance and dividing it with the person's life expectancy. The life expectancy is determined by the IRS.
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