What are some common IRA withdrawal rules?


Quick Answer

Among the common rules of IRA distributions (or withdrawals) include that all IRA distributions are taxed as regular income and distributions made by the account holder before the age of 59 1/2 years will be penalized an additional 10 percent. The distribution, however, will not be penalized if the distribution made by an account holder is under certain circumstances, such as for first-time home purchase, unreimbursed medical expenses and in case of death or disability, according to the IRS.

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Full Answer

IRA, which stands for individual retirement account, is a type of account provided by financial institutions where an individual can save for retirement. Such accounts have several tax advantages, which make them an ideal way to store away cash, according to Fidelity.com. There are three main types of IRAs: traditional IRA, Roth IRA and Rollover.

Apart from those already mentioned, distributions that are made by the account holder before the age of 59 1/2 will not be penalized if the distribution will be used for qualified educational expenses and for health insurance if the account holder is unemployed. Distributions made by the account holder after the age of 59 1/2 to 70 years old will not be penalized. However, the distribution is considered as taxable income and is subject to federal and state tax. After the age of 70 1/2, it becomes mandatory for the account holder to make withdrawals at the required minimum distribution (RMD). Failure to do so is a violation and will be penalized at the cost of half of the RMD.

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