You may be aware of the fact that you can’t let funds sit in your traditional IRA indefinitely. Once you reach age 72, you’re required to start taking withdrawals.
You may also be aware that the rules for taking required minimum distributions, or RMDs, are complex. Here are some answers to frequently asked questions about taking withdrawals from a traditional IRA (including SIMPLE IRA or SEP IRA).
Can I withdraw money before retirement?
The simple answer: yes.
That said, if you want to take money out of a traditional IRA before the age of 59.5, those distributions are taxable and you may be subject to a 10% penalty tax.
That 10% penalty tax—but not regular income tax—can be avoided if you pay:
- Qualified higher education expenses
- Up to $10,000 of expenses if you’re a first-time homebuyer
- Health insurance premiums if you’re unemployed
When can I take my first RMD for an IRA?
You must take your first RMD by April 1 of the year after the year in which you turn 72. Note that this rule applies whether or not you’re still employed.
How do I determine my RMD?
When calculating your RMD, take the account balance from the end of the preceding calendar year and divide it by the distribution period from the IRS’s Uniform Lifetime Table.
If the sole beneficiary is a spouse who is 10 or more years younger than the owner, a separate table will be used.
What if I have multiple accounts?
For those with more than one IRA, the RMD for each must be calculated separately each year.
However, you don’t have to take a separate RMD from each IRA—you may combine the RMD amounts for all IRAs, and either withdraw the total from one IRA or a portion from each.
Can I withdraw amounts exceeding my RMD?
Yes—you can always withdraw more than your RMD. Note, however, that you cannot put excess withdrawals toward RMDs in future years.
When planning for RMDs, weigh your income needs against the ability to maintain the IRA tax shelter for as long as possible.
Can I withdraw more than once a year?
Yes. As long as you withdraw the total annual minimum amount by December 31 (or, if it’s your first RMD, April 1), you may withdraw your yearly RMD in any number of distributions throughout the year.
What if I don’t take an RMD?
If your distributions for any given year are less than your RMD, you’ll be subject to an additional tax. This tax is equal to 50% of the amount that was not paid out but should have been.
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