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Home » IRA and Retirement Planning » When it is Time to Access Your IRA

When it is Time to Access Your IRA

November 6, 2015IRA and Retirement Planning

time to access your IRAYou have been faithfully contributing to your Individual Retirement Account over the years, and now you are wondering if you can access those funds without penalty.  When it is time to access your IRA, there are a few limitations and exceptions that you should be familiar with.  While you can technically withdraw money from your IRA at any time, if you want to do so without penalty, it depends on your age and the purpose of your withdrawal.

Early withdrawal penalties for IRAs

The early withdrawal penalties for traditional and Roth IRAs are different.  Money can be withdrawn, without penalty, from a traditional IRA when you reach age 59 ½.  Before that time, you will be charged a penalty of 10% of the total amount you choose to withdraw.  You must also pay any required income taxes on the amount.  However, with a Roth IRA, you are allowed to withdraw the total amount of your contributions at any tie.  But if you withdraw the earnings before you reach age 59 ½, you will be assessed the early withdrawal penalty.

Exceptions to early withdrawal penalties

If you make a withdrawal before it’s time, you may be able to avoid the penalty if you manage to pay the contribution back before the tax filing deadline.  You must also refrain from deducting that contribution from your personal income taxes.  Another way to avoid penalties is to roll over your traditional IRA into another type of qualified retirement account, but you must do so without 60 days.

What is the purpose of your withdrawal?

There are certain reasons for withdrawing money from an IRA that do not incur the 10% penalty.  For example, if you are paying college expenses for either yourself, your spouse or another immediate family member, you can do so without penalty.  You can also withdraw funds to pay medical expenses that are greater than 7.5% of your AGI, or to purchase your first home, for up to $10,000.  Finally, if you need to withdraw funds to pay the costs of an unexpected disability, you will not be assessed a penalty.

What are “Substantially Equal Periodic Payments”

You have one more option for avoiding penalties for early withdrawal from a traditional IRA, referred to as “substantially equal period payments.” The IRS will determine, based on your life expectancy, how much you can receive each year.  You are then allowed to withdraw that amount every year without penalty.  However, once you begin receiving these periodic payments, you cannot change your mind. Instead, you are required to receive these payments until you turn 59 ½ or until five years have passed, whichever is longer.

Withdrawals after age 59 ½ are penalty-free

Once you reach 59 ½, you can make withdrawals from a traditional IRA penalty-free. However, you must pay income taxes on those withdrawals. Withdrawals from Roth IRAs are penalty-free, once five years have passed since your first contribution to the account.

If you have questions regarding IRAs, or any other retirement planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.

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Scott Schomer, Estate Planning Attorney
Scott Schomer, Estate Planning Attorney
A graduate of Boston University School of Law, Scott P. Schomer is a frequent lecturer on estate planning and elder law issues, having discussed these important issues on local and national television. A seasoned courtroom advocate, Scott has obtained combined judgments and verdicts in excess of twenty-five million dollars for his clients. Scott has served as a member of the Los Angeles Superior Court Probate Volunteer Panel (PVP Attorney), Probate Settlement Panel and a Judge Pro Tempore. Scott's expertise has been recognized by his peers with such accolades as a life-time membership in the Multi-Million Dollar Advocates Forum, the Five Star Wealth Manager designation, and repeated nominations as California Super Lawyer.
Scott Schomer, Estate Planning Attorney
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