Making IRA Withdrawals

Traditional IRAs

You may begin to make withdrawals from a traditional IRA as soon as you turn 59 1/2. Any earnings you've accumulated are taxed at your regular federal income tax rate. And, if you deducted your contributions to the account, you'll owe tax on the entire balance of the withdrawal. You may owe state and local income taxes as well.

If you withdraw from your account before you reach 59 1/2, you'll likely incur a penalty of 10% of the amount of the withdrawal, in addition to the taxes you owe. The exceptions for which you avoid this penalty include using the withdrawal to pay for qualifying medical expenses, college tuition, and up to $10,000 toward the purchase of a first home for yourself, your child, or your parents. You must begin making annual withdrawals, known as required minimum distributions (RMDs), by April 1 of the year following the year in which you turn 70 1/2. RMDs must be taken by Dec. 31 every year after that.

To find your RMD, you divide your account balance at the end of the previous year, which is typically Dec. 31, by a withdrawal factor based on your age using the IRS uniform life table. You can find this table in IRS Publication 590 or from your financial or tax adviser.

You can take your required distribution any time before Dec. 31. But, you must be sure to withdraw at least the required minimum, as taking out too little will result in a significant penalty of 50% on the amount you were required to but didn't withdraw.

Roth IRAs

If your Roth IRA account has been open for at least five years, you don't owe any federal income tax if you withdraw from your account at 59 1/2 or later. Moreover, there aren't any mandatory withdrawals, so you can take your retirement money out on your own timetable.

This material is for informational purposes only and Scottrade is not responsible for any errors or omissions. The information is subject to change without notice and should not be construed as a recommendation or investment advice. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.