When Can I Access My IRA?

While you can technically withdraw from your IRA at any time, the question is, do you want to incur a penalty for doing so?  The government charges penalties for early withdrawals from IRAs in order to discourage us from depleting them before we even reach retirement age.  An IRA is a retirement account after all.  However, there are some exceptions.  So, if you are wondering, “when can I access my IRA?” the answer depends on how badly you need it.

What are the early withdrawal penalties?

When you reach age 59 ½, you can withdraw money from a traditional IRA with no penalty.  If you are younger than 59 ½, the penalty is 10% of the total amount you withdraw, in addition to the required income taxes you must pay.  A Roth IRA is different.  You are allowed to withdraw the total amount of your contributions to a Roth IRA at any time.  However, if you withdraw any of the earnings of a Roth IRA before you reach age 59 ½, you will be assessed a penalty.

Withdrawals after age 59 ½

After age 59 ½, withdrawals are penalty-free with a traditional IRA.  However, you are still required to pay income taxes on any withdrawals. Withdrawals from Roth IRAs, after age 59 ½, are penalty-free as long as five years have passed since the first contribution to the account.

Exceptions to the early withdrawal penalties

You may be able to avoid a penalty if you pay back a contribution to a traditional IRA, if you do so before the tax filing deadline and do not deduct the contribution from your personal income taxes. You can also avoid penalties when you roll your traditional IRA over into another qualified retirement account within 60 days. You may avoid the penalty, but you still do not get the opportunity to spend those funds.  Finally, there are specific reasons for withdrawing money from your IRA that will not incur the 10% penalty, including the following:

• Paying college expenses for you, your spouse or your immediate family.
• Paying medical expenses greater than 7.5% of your adjusted gross income.
• Paying for a first-time home purchase (up to $10,000).
• Paying for the costs of a sudden disability.

There is one other exception, if none of these apply to your situation – making substantially equal periodic payments.

“Substantially Equal Periodic Payments”

There may be a situation, that does not fit into the exceptions listed above, that makes an early withdrawal unavoidable.  If that is the case, you can look into what is referred to as “substantially equal period payments.”  This option applies to traditional IRAs this is how it works:  The IRS determines how much you can receive each year, based on your life expectancy,  then you are allowed to withdraw that amount every year.

The catch is, once you start receiving these periodic payments, you cannot change your mind.  You must continue to receive the payments until you turn 59 ½ or five years have passed, whichever period of time is longer.  Otherwise, you will be assessed a 10% penalty, retroactively from the date of the first payment.  Depending on your circumstances, the advantages may outweigh the disadvantages.  Consult with a retirement planning attorney before making your decision.

If you have questions regarding IRAs, or any other retirement planning needs, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.