You can take money out of an IRA (Individual Retirement Account) when you meet the conditions that the account administrator and the Internal Revenue Service (IRS) have set as terms for the fund. When you make a withdrawal it is called a distribution. If you take a distribution before the pre-set age of 59 ½, then you will have penalties and taxes assessed by the account administrator and the IRS. The penalty amount will depend on the circumstances for the distribution. Some exceptions are allowed, but you will still have to pay a penalty if you take out an early distribution. For example, one retirement fund requires that the funds be invested for a minimum of five years before you can make the withdrawal.
The Roth IRA is an IRA you can take money out of without paying penalties or interest if you remove the money for educational expenses, a home purchase, or because you are disabled and no longer able to pay unreimbursed medical expenses. You paid taxes on the funds that you invested in your Roth because the contributions were made with after-tax dollars. You must have held this account for a minimum of five years and you must be at least 59 ½ to avoid any fees on the withdrawal.
When you have a traditional IRA you must leave the money in the account until you are 59 ½. When you take money out of an IRA that is a traditional account you must pay taxes on the money removed. When you contribute to the traditional IRA it is with pre-tax money. Any distribution will have taxes assessed whether you are aged 59 ½ or not. When you do not meet the age requirement and you withdraw an early distribution, there are limits to the amount you can take and limits on what the money can be used for. You can take a maximum of $10,000 out for a down payment for real estate, but you cannot have purchased a home in the last 24 months. You will be assessed a ten percent penalty for amounts in excess of $10,000.
If you have medical expenses that are not reimbursed then you can withdraw to pay those expenses. The expenses must exceed seven and one-half percent of your adjusted gross income. If you are disabled you can withdraw the funds early. If you want to pay educational expenses on yourself or a member of your immediate family you can withdraw the funds early. Rule 72(t) is the equally substantial distribution that younger members can remove from the traditional IRA. You will have to follow the withdrawal amounts listed in the mortality table of the IRS in order to avoid paying a penalty of ten percent on these withdrawals. They must be made every year for up to five years or until you reach the age of 59 ½. At that point you will have to make application to the account manager to set up these distributions.
If you retired before the age of 59 ½ and you do qualify for the 72(t) program it is an option that you may want to pursue. There is no penalty assessed against those who qualify for this program but there will be taxes that have to be paid. Talk to the individual who prepares your taxes or the account manager if you need to withdraw funds. If you follow the guidelines of the IRS and the account manager of the retirement fund, you can take money out of an IRA and you will avoid paying the penalties and sometimes the taxes that are associated with early distribution.