There are several ways you can plan for your future retirement. It doesn't matter what your age is or how much you plan to put away, there are many ways to get your money to grow for you and help you to prepare for that future date. One way to do this is with an individual retirement account (IRA). Generally speaking, the IRS allows you to deposit money into your account before it is taxed. The benefit of this is that you're able to put away more money that can actually work towards building your nest egg for the future. While all of that is great, you also need to focus on understanding traditional IRA withdrawal rules as they can have a major impact on you and may cause you to incur penalties and taxes if you're not careful.
Traditional IRA Basic Withdrawal Guidelines
When you have a traditional IRA you defer taxes on your deposits until you're ready to withdraw the money. The rules guiding the taxes you pay will vary depending on several different variables.
When You Are Under 59 And A Half
A 10% early withdrawal penalty is imposed on any withdrawal from your traditional IRA if you are under the age of 59 and a half. You will also be expected to pay taxes on the money you use from your account. There are several exceptions that can help you avoid this penalty:
1.) For a first-time home purchase.
2.) Qualified education expenses.
3.) Death or disability.
4.) Unreimbursed medical expenses.
5.) Health insurance (only if you're unemployed).
Note, however, that while these exceptions may help you to avoid paying early withdrawal penalties, you will still be expected to pay taxes on the money you withdraw. It is strongly recommended that you speak to a tax adviser before you make such a withdrawal so that you know exactly what the taxes will be.
When You Are Between 59 And A Half And 70
Some of the penalties are eased when you make your withdrawal after the age of 59 and a half. It's important that you may not have to pay penalties for the money you use from your account you will have to pay Uncle Sam.
If You're Over 70 And A Half
For those who truly are understanding traditional IRA withdrawal rules they'll realize that those who are over 70 and a Half will be required to start making a minimum withdrawal distribution from your account. These distributions are mandatory and your account will be subject to as much as 50% excess-accumulation penalty, which definitely makes it worth your while to take the distribution and redeposit it in another account if you don't need it.
Understanding traditional IRA withdrawal rules is important before you decide to withdraw an amount from your account. Planning for retirement is not for the weak at heart; there are many expectations and rules that you will have to become familiar with from both your financial institution and the government. For those who may not be fully sure of your options or what to expect it may be wise to get some additional advice from a financial adviser to help you to make a decision that you will be able to live with and retire on in your later years.