Early Withdrawals on Regular IRAs

Time Frame

Any individual who has earned income and is under the age of 70 1/2 can open and contribute to a regular IRA, which is usually called a traditional IRA. An account holder may begin taking qualified withdrawals from her traditional IRA in the tax year when she reaches 59 1/2 years of age. The account holder must begin taking minimum withdrawals from her IRA in the tax year when she reaches age 70 1/2 . Funds in a traditional IRA always belong to the account holder, and she may withdraw them at any time for any reason. Funds withdrawn before she reaches 59 1/2 years are usually considered to be non-qualified and are subject to ordinary income taxation plus a tax penalty of 10 percent of the amount withdrawn.

All withdrawals from a traditional IRA are taxed as ordinary income whether they are qualified or non-qualified early withdrawals. Taxpayers may make non-qualified early withdrawals without incurring the 10 percent tax penalty under certain circumstances. A taxpayer may take a penalty-free withdrawal to pay medical expenses that exceed 7.5 percent of her adjusted gross income. A taxpayer who becomes disabled may take penalty-free early withdrawals from her IRA. The estate of a taxpayer who dies prior to reaching age 59 1/2 may access her IRA without incurring a tax penalty. A taxpayer may take penalty-free withdrawals from her IRA to pay for a first home or for educational expenses for herself, her spouse or her dependent children.

A taxpayer may wish to move her retirement funds from one trustee to another through a process known as a rollover. The IRS recommends that the taxpayer allow the new trustee to initiate the rollover for a direct transfer to prevent the taxpayer from taking possession of the funds, which may generate a taxable event. A taxpayer who takes an early withdrawal may avoid paying income taxes and the tax penalty on the withdrawal by reinvesting the funds into another qualified retirement plan within 60 days.

A taxpayer may withdraw funds from her IRA during the tax year in which the contribution was made without incurring a tax penalty. The taxpayer may take the withdrawal up to the date when her tax return is due, typically April 15 of the the following year, but this date may be extended to accommodate any extension granted to the taxpayer for filing her taxes. The taxpayer may not claim a deduction for the amount contributed and then withdrawn. Any interest or other income earned by the contribution that is withdrawn must be reported as income and is subject to ordinary taxation.