5 Kinds of IRA Withdrawals and Their Rules

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You know by now that you must save money for the time after you stop working for good, but a time may arise when you have no choice but to take some of that money out of your 401(k) or IRA account before you get to that point. There are a few rules for taking money out of your 401(k) or IRA account before you reach retirement age. Other rules apply when you're ready to retire and enjoy the fruits of your labors.

There are five main types of IRA withdrawals: early, regular, required minimum distributions (RMDs), Roth IRA withdrawals, and IRA rollovers or transfers. Diverse rules apply to each of them and to the reasons why you might take money out of your account. 

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Early IRA Withdrawals

IRAs are made for retirement savings. IRS rules say that the money must be withdrawn when you are at an age where you stop working for good. If you withdraw funds from your IRA before you reach age 59 1/2, the IRS will assess a 10% early-withdrawal penalty tax. Roth IRAs do not have the same rules.

You must report any funds you take out early from your traditional IRA on your 1040 tax form, and you'll pay income taxes on the money as well. There is no way to avoid the income tax, but you may be able to avoid the penalty tax portion if you are taking money out of your account for a reason listed under the IRA withdrawal hardship rules. 


You must report any money you take out of your IRA on your income taxes. You will receive a 1099-R form that details the money you took out of your account. The form will have what you need to report the money you received from your IRA.

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Roth IRA Withdrawals

Taking money out of your Roth IRA before you retire can be tax-free at times, but not always. The great thing about a Roth is that you can withdraw the original money you put in the account at any time, at any age, without having to pay taxes or penalties. That does not apply to money that came into the account from conversions or rollovers.

If you withdraw the money you've earned on the principal balance in your Roth IRA before you reach age 59 1/2 or before you've had the Roth for five years, taxes and penalties will apply. If it's a Roth account in a 401(k) plan, the rules are different.

As long as you follow the rules and use the Roth for the years when you are over age 59 1/2 and no longer working, then the money you take out of the account will be tax-free

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Normal IRA Distributions

You can take funds out of your traditional IRA and no penalty taxes will apply after you reach age 59 1/2. These are looked at as normal IRA payments because you're using them for the years when you are no longer working.

Because you didn't pay taxes on the money when it first went into your IRA, the amount withdrawn is included in your current taxable income. You must report it on your 1040 tax form.

The amount of tax you'll pay on getting money from your IRA will depend on your tax bracket and your total taxable income after any deductions you can take that year. If your income is high, you'll pay taxes at a higher rate. If you have more deductions than you have income, you may pay no tax at all. 


A financial planner can help you figure out if you should convert some or all of your traditional IRA funds into a Roth IRA. There can be tax advantages to paying the taxes now instead of years later, when your tax bracket could be higher.

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Required Minimum Distributions

The IRS requires that you start taking money out of your IRA accounts, 401(k)s, 403(b)s, 457 plans, and other tax-deferred retirement savings plans once you reach age 72. These required minimum distributions are often referred to as "RMDs."

If you take only part or none of your RMD, the IRS rules require you to pay a 50% tax on the amount of RMD not taken.

The amount you must take changes each year, because it's based on a formula using your age and the prior year-end account balance. You don't have to take RMDs from a Roth IRA if you own the account, but you will have to take an RMD each year if you inherit a Roth. 

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Rollovers and Transfers

When you roll over a qualified retirement account, such as a lump sum from a pension plan, 401(k), or 403(b) into a new IRA, the IRS does not count this as taking money out of the account. You can roll over accounts with no taxes or penalties, no matter your age, if you follow the IRS rules.

When you move money from one IRA to another, this is called a transfer. If your IRA money goes between financial institutions and the money is never in your hands, you aren't subject to taxes or penalties for those transfers.

If the IRA funds come to you and you put them back into a qualified account within 60 days, you'll be spared the taxes and penalties. But you can only do this once during each 12 month period or it may be looked at as a payment subject to tax. 

Mistakes Can Be Costly

Be sure the IRS rules for taking money out of your IRA, rolling it over, and transfers make sense to you before you start moving money around. This will prevent you from losing any of your golden nest egg. If you're early in or in the middle of your career, resist the urge to take funds out of the accounts you've set aside for when you stop working. You'll need all the money you can get when you longer work.

Frequently Asked Questions (FAQs)

Can I withdraw money from an inherited IRA?

If you inherited an IRA from a spouse, you can designate yourself the account holder or roll it into an IRA you already own. If you aren't a spouse, you must withdraw all the money from an inherited IRA within 10 years. You won't owe any penalties, but you will have to pay income tax on the money.

Can I use money from an IRA for educational expenses?

If you withdraw money early from a Roth IRA to pay for college tuition, you will have to pay income tax but not the 10% early-withdrawal penalty.

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  1. IRS. "IRA FAQs - Distributions (Withdrawals)."

  2. IRS. "Retirement Topics — Required Minimum Distributions (RMDs)."

  3. IRS. "Publication 590-A (2019), Contributions to Individual Retirement Arrangements (IRAs)."

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