Taking distributions from your IRA rollover account
If you are concerned about not having access to your IRA money for emergencies, consider that early withdrawal penalties are waived if you withdraw money from your Traditional IRA or Roth IRA before age 59½ for any of the following reasons:
- First-time home purchase (lifetime limit of $10,000)
- Post-secondary education expenses
- Substantially equal periodic payments (under 72(t )rules)
- Payment of health insurance premiums by an individual receiving unemployment compensation for at least 12 consecutive weeks
- Disability
- Death
- IRS levy
- A qualified reservist distribution as provided by the Pension Protection Act of 2006
- Medical expenses above 1.5% of AGI
Substantially equal periodic payments — 72(t) distributions
If you need an income stream from your Traditional IRA before you reach age 59½, Section 72(t) of the Internal Revenue Code could allow you to take distributions without a penalty for premature distributions. Some common reasons for taking 72(t) distributions include cash flow problems due to a loss of employment or acceptance of an early retirement package.
Under 72(t) rules, distributions before age 59½ can be exempt from early withdrawal penalties if they are
- part of a series of substantially equal payments made on a regular basis (must be at least annually)
- calculated according to one of three methods approved by the IRS
- continued for five years or until the account owner reaches age 59½, whichever is longer
72(t) distributions can have many benefits including
- letting you tap into retirement savings without the typical 10% early withdrawal penalty
- maintaining the tax-deferred status of your remaining IRA assets
- allowing you to respond to changing financial circumstances
If you think 72(t) distributions may be right for your circumstances, be sure to work closely with your financial advisor to make sure you follow all the rules.
Required Minimum Distributions
New distribution rules
Generally, you must begin taking distributions from your Traditional IRA
by April 1 of the year after you turn 70½. (Note there are no required minimum distributions
from Roth IRAs for the IRA owner. However, beneficiaries may be required to
take distributions.)
|
