An Individual Retirement Account (IRA) is an optional retirement savings account. IRAs have specific tax benefits, because you do not have to pay taxes on your contributions or their accrued interest until you withdraw the funds upon retirement. There are two types of IRAs, Traditional IRAs and Roth IRAs, and each has its own rules of distribution that relate to turning 59 1/2 years old.
Age 59 1/2 Rule
If you have a Traditional IRA, you must be at least age 59 1/2 years old before you can start withdrawing the funds without incurring penalties. These are not the same distributions you are required to take beginning when you reach age 70 1/2. Once you reach age 70 1/2, you receive annual distributions from that point on until your death based on a rate established by the government. This is a distribution of the savings you have built over the previous years. The 59 1/2 rule ensures you will not use your assets before the beginning distribution date.
Before 59 1/2
The 59 1/2 rule establishes a minimum age for withdrawals from your IRA without penalties. However, you are allowed to withdraw assets from your account at any moment provided you pay any necessary penalties. If you do withdraw funds before you are 59 1/2 years old, you typically pay a 10 percent tax penalty on the amount you withdraw. Distributions made before the minimum age--and thus subject to penalty--are called early distributions.
The 59 1/2 rule has some exceptions. Once you make contributions into the account, you can withdraw those funds without any penalty until the date when your next tax filing is due. Once that date has passed, the funds are locked into the account, and the normal penalty applies. However, to make such a same-year withdrawal of a contribution without penalty, your contribution must have been nondeductible, and you cannot withdraw any gains or interest you have earned from this contribution for the time it has been in the account.
Other exceptions that allow you to make early withdrawals without penalty include paying for medical expenses that are 7.5 percent more than your annual adjusted gross income, paying medical insurance costs, paying disability expenses, purchasing your first owned home and paying for higher education. Also, if you inherit an IRA, you do not have to wait until you are 59 1/2 to withdraw the funds.
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