Estate Planning

IRA Withdrawals

You can withdraw money from your Individual Retirement Account at any time, however there are in some cases penalties or earnings tax associated. The guidelines vary depending on whether you have a Roth or a traditional Individual Retirement Account and, similar to a 401(k), the “magic” age is 59 1/2.

Roth IRA’s
If you have a Roth IRA, your contributions are made with after-tax dollars. This means that withdrawals are not subject to income tax, no matter how old you are when you make a withdrawal. Charges, though, are a different story. Once you reach age 59 1/2, all of your withdrawals are tax- and penalty-free. If you’re under 59 1/2, you can withdraw money that you’ve in fact contributed without paying a charge. If you withdraw revenues on your contributions, or money converted from a standard Individual Retirement Account, however, you’ll have to pay a 10% penalty.

Traditional IRA’s
Because traditional Individual Retirement Account’s are moneyed with pre-tax dollars, the guidelines for withdrawals are a little bit more stringent. Similar to a Roth, as long as you’re 59 1/2, you can make withdrawals without paying a charge, although you’ll pay income tax. If you’re under 59 1/2, however, you’ll wish to reconsider prior to withdrawing funds– any quantity you withdraw is subject to a 10% penalty, plus the regular earnings tax.

There are some exceptions that allow you to take a withdrawal if you’re under age 59 1/2 without paying a charge. These include:
u2022 Paying certified college expenditures for you, your kids or grandchildren.

But beware, these exceptions are subject to strict rules. If you’re under 59 1/2, make sure to get recommendations before you take a withdrawal from your IRA.