IRA Distributions

If you choose to fund a traditional IRA, it's important that you understand when your money is available for withdrawal and when you must take withdrawals. Typically, the youngest age you can take a distribution from your IRA without penalty is 59 1/2. If you take a withdrawal prior to this age, you will have to pay a 10% penalty in addition to your owed taxes. There are a few exceptions to this minimum withdrawal age including funding college, buying a house, or paying for excessive medical bills. If you are facing an extraordinary situation, check to see if it meets the IRS' limitations in allowing an early distribution. Another way to access the funds is through something called Substantially Equal Periodic Payments, (also known in the industry as 72T). SEPPs allow you take money out of an IRA, but there are several hitches. First, you must establish how much money you will be withdrawing, through one of three methods. Then, once you start taking distributions, you must continue until you are 59 1/2 or five years, whichever is LONGER. This can cause you to seriously erode the value of your account, which is intended to help you through old age.

If you save your traditional IRA carefully, the IRS makes you eventually take money out (so they can get their taxes). The maximum age is April 1 of the year after the year you are 70 1/2. Now, originally the answer was easier than that--70 1/2. However, the IRS will allow you to postpone the first payment until April 1. If you do this, be aware you must take two distributions that second year--the postponed one and the one scheduled for year two. Further, if you are employed, and your company retirement plan is a SEP IRA or a SIMPLE IRA, you must take your required minimum distribution on the same schedule as a traditional IRA. This confuses some people because 401(k) plans don't require a distribution until you retire for most rank-and-file employees. If you forget to take your distributions, what's the penalty? 50 PERCENT!!! Don't make the mistake.

Be Prosperous!
Peggy