When Are IRA Distributions Allowed?

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When Are IRA Distributions Allowed?

Normal distributions from your IRA are allowed after you reach age 59½. At this age, you may begin making voluntary withdrawals. Once you have reached the age of 73, however, you are required by law to take distributions. There are IRS formulas that will help you determine how much you must withdraw after age 73. Prior to 2023, the age for required minimum distributions was 72.

The 10 percent penalty tax

If you take a premature withdrawal before 59½, you will be charged a 10 percent penalty tax on top of the regular income taxes you’ll owe on the withdrawn amount. However, you can withdraw without penalty under any of these exceptions:

Exceptions

• You become disabled.
• You die, in which case the money in the IRA is paid to your beneficiary.
• You incur certain medical expenses. They must exceed 10% of your adjusted gross income and cannot be covered by insurance.
• You pay health insurance premiums while unemployed. There are certain conditions you must meet to qualify for this exception.
• You need the money to pay certain college expenses.
• Your withdrawals are made as part of a series of equal annual withdrawals based upon your life expectancy.
• Buying a home for the first time if the home is to be a principal residence. The limit is $10,000 over your life.
• The distribution is due to an IRS levy of the qualified plan.
• The distribution is a qualified reservist distribution.
• You use up to $5,000 after the birth or adoption of a child.
• Qualified disaster distribution.
• Terminal illness.

Allowable exceptions may change over time.

Two new hardship exemptions

Starting in 2024, you can make a penalty-free withdrawal up to $1,000 per year from an IRA for emergency purposes. Withdrawals will still be taxable and may be repaid within 3 years (though repayment is not required). You are allowed only one withdrawal during this 3-year period unless you have paid it back. You are allowed to self-certify the emergency.

Another exception starting in 2024 is for domestic abuse. You can make a penalty-free withdrawal up to the lesser of $10,000 (indexed for inflation) or 50 percent of the balance of the account. You are allowed to self-certify the abuse when making this withdrawal.

Although the rules can be complicated, knowing your withdrawal options will make withdrawing your IRA money a much easier and more cost-effective way to retire.