Early Withdrawals From
Your Traditional IRA
Withdraw As Intended or Pay Taxes & Penalties
Because IRA funds are to be used for retirement, the government discourages
you from taking IRA distributions before you reach age 59½. Consequently,
any taxable distributions you take from an IRA before reaching age 59½ are
generally subject to a 10% early distribution penalty tax.
Q: When can I withdraw assets from my Traditional IRA?
A: You can withdraw funds from your Traditional IRA at any time. To avoid
a 10 percent early withdrawal tax penalty however, you may not withdraw
funds unless at least one of the following applies:
• Attained age 59½
• Become totally disabled
• Received your distribution in substantially equal installment payments
over your life expectancy or the life expectancy of you and your
beneficiary
• Certain medical expenses
• To purchase health insurance if unemployed
• Certain qualified higher education expenses
• First time home buying expenses capped at $10,000
If the 10 percent early withdrawal penalty is applicable, it is in addition to
ordinary income tax. Required minimum distributions must begin no later
than April 1 following the year in which you attain age 70½.
Q: How do I take distributions from my Traditional IRA?
A: Benefits may be paid in a lump sum, periodic installments or a lifetime
annuity. These distributions are taxed as ordinary income in the year you
receive them (plus the 10 percent early withdrawal penalty, if applicable).
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Early Withdrawals From Your Traditional IRA
Q: Who gets the money if I die before all benefits are paid?
A: You may name a beneficiary to receive these funds. The
beneficiary will determine the method of payment and will
pay income tax on the money as received. However, your
beneficiary will receive these benefits without penalty.
Q: If my Traditional IRA holds deductible and nondeductible
contributions, can I make a tax-free withdrawal from the
nondeductible portion?
A: No. You may not specify that your withdrawal be made
only from nondeductible contributions on which you have
already paid taxes. Instead, withdrawals will be taxed in the
same proportion that nondeductible contributions bear to
total Traditional IRA account values. Thus, you will owe
taxes on a portion of every withdrawal.
Check with your tax advisor
Under certain circumstances, an individual under 59½ may
take distributions from his or her IRA without incurring
a 10% early distribution penalty tax. Distributions are not
subject to the penalty tax if taken due to death or disability
of the IRA holder, or if taken under an exception discussed
above. Before taking any distribution from your IRA, you
should consult with your tax advisor.
J.J.B. Hilliard, W.L. Lyons, LLC | Member NYSE, FINRA & SIPC. Hilliard Lyons does not offer tax or legal advice. Please consult your tax advisor or
attorney before making any decision that may affect your tax or legal situation. ©2007 All rights reserved.
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