When Can I Access My IRA?

March 25, 2015

IRATechnically speaking, you can take money out of your IRA at any time.  The real question is, whether you want to pay a penalty or not.  The government discourages us from raiding our IRAs until we reach retirement age, since an IRA is a “retirement account.”  But, as with most things, there are exceptions.
The general terms of an IRA
With a traditional IRA, if you withdraw money before you turn 59 ½, you will be required to pay a 10% penalty on the total amount you withdraw.  That penalty is in addition to the income tax you will also be required to pay.  A Roth IRA, on the other hand, allows you to withdraw your contributions, without penalty, at any time as long as you do not withdraw any of the earnings before age 59 ½.
Once you reach age 59 ½, you can make penalty-free withdrawals from a traditional IRA account, but you will still owe income taxes on withdrawals from a traditional IRA.  With a Roth IRA, you can withdraw penalty-free at age 59 ½, as long as it has been at least five years since your first contribution.
Exceptions to the early withdrawal penalties
First, you may be able to “take back” one contribution to a traditional IRA, as long as you do so before the tax filing deadline and you do not deduct the contribution from your taxes.  You may roll your employee in-plan Roth IRA over into another qualified retirement account, such as a traditional Roth IRA, within 60 days.  Of course, this means you do not actually get to spend the money.  Finally, there are a few reasons for withdrawing money from your IRA that will not incur the 10% penalty, including the following:

  • Paying college expenses for you, your spouse, your children or grandchildren.
  • Paying medical expenses greater than 7.5% of your adjusted gross income.
  • Paying for a first-time home purchase (up to $10,000).
  • Paying for the costs of a sudden disability.

If none of these exceptions apply to you, there is one more option.
“Substantially Equal Periodic Payments”
If you really need the cash, you can consider taking what’s known as "substantially equal periodic payments” from your traditional IRA.  The IRS determines the amount you can receive each year, based on your life expectancy and you are allowed to withdraw that amount every year.  However, once you start receiving substantially equal periodic payments, you will not be allowed to stop receiving the payments until you're 59½ or five years have passed, whichever is longer.  Obviously, the downfall is that you cannot change your mind.  If you do, you will be assessed the 10% penalty retroactively from the first payment.  This may be a good option for some, but discuss the pros and cons with your retirement planning attorney before making the decision.
If you have questions regarding IRAs, or any other retirement planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.

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