It is possible to make penalty-free IRA withdrawals. Anyone over the age of 59 1/2 can withdraw funds from their IRA without paying a penalty, pursuant to IRC sec 72(t). In addition, there are exemptions for individuals who meet certain requirements.Know More
The Individual Retirement Account was created by 26 U.S.C. sec 408 and is controlled by Internal Revenue Code section 72. An IRA permits an individual to invest and save money for retirement without paying income taxes on the gains until the funds are withdrawn. The Internal Revenue Code provides that early withdrawals from an IRA are subject to a 10 percent penalty. The exceptions to this penalty are listed in IRC sec 72(t).
The most famous of these exceptions is the "series of substantially equal periodic payments" exception, according to Getting Your Financial Ducks In a Row. This exception allows for withdrawal of the IRA funds without requiring any special circumstances. However, this exception has very specific and complicated requirements to ensure the withdrawal stays penalty-free.
IRC sec 72(t) also provides for less complicated penalty-free withdrawals under special circumstances. For example, funds may be withdrawn from an IRA without paying a penalty for certain unreimbursed medical expenses and to pay for health insurance while unemployed. IRA funds may also be withdrawn penalty-free if the owner of the account becomes totally and permanently disabled, to pay for qualified educational expenses and to pay up to $10,000 for first-time home buyers.
Before withdrawing funds from an IRA, you should speak to a tax professional to review your specific circumstances.Learn more about Financial Planning
Mandatory minimum withdrawals must initiate by April 1 of the year after an IRA holder reaches 70 1/2, and account holders must take distributions every subsequent year by December 31, reports the IRS. Some plans allow IRA holders continuing to work after 70 1/2 to initiate distributions when they retire.Full Answer >
The rules for Roth IRA withdrawals depend on the ages of the account owner and the account itself, explains Charles Schwab. People who are 59 or younger may face a 10-percent penalty for Roth IRA distributions, explains Fidelity. As of 2014, there aren't penalties for withdrawals between the ages of 59 1/2 and 70, although there are penalties for not withdrawing once the owner reaches 70 1/2 years old.Full Answer >
There are circumstances where early withdrawals from a Roth IRA are penalty-free, states Fidelity. However, there are specific requirements to meet in order to withdraw funds, including the age of the Roth IRA and the age of the account holder.Full Answer >
Some reasons people make early withdrawals from their IRAs include disability, death of the IRA owner, medical expenses, purchase of a first home, costs of higher education, active military duty, payment of health insurance premiums during unemployment and payment of back taxes to the IRS. The IRS excuses the early distribution tax penalty for these withdrawals. Other reasons include a falling stock market, the payment of debt and early retirement.Full Answer >