Early Withdrawal from IRA
Life happens, emergencies arise when we least expect it crippling our budget’s stability. These times we consider getting loans from various sources. We are even forced to take out money from our retirement plans such as IRA’s before it matures, although this is normally not permitted and certain fees and penalties are to be imposed with doing so. Early withdrawal penalties though have exemptions and we will discuss them later in this article.
There are so many types and forms of Individual Retirement Accounts. Traditional IRA, Roth IRA, SEP IRA, Self-Directed IRA, and Simple IRA are the most popular. So to narrow down the broadness of our main topic that is IRA early withdrawals, let’s be specific to one type of IRA and that would be Roth IRA.
Roth IRA account is the most popular choice of many because of its tax-free growth and tax-free withdrawals. Let us learn about Roth IRA basics and later discuss how withdrawals from this type of account work. Roth IRA rules include eligibility rules, contribution rules and withdrawal rules.
Every individual who is working for a living is entitled to open a Roth account regardless of age. As long as you’re receiving taxed compensations such as wages, bonuses, salaries, professional fees, and all other income because of giving service to others then you can contribute to this type of IRA account.
An account holder can contribute an amount up to a maximum of $5,000 and $6,000 (catch-up limit) for those who age 50 and up. Contributions to Roth have its limits based on an individual’s income. The said limits are as follows:
- For single filers, head of households, and married filers who lives not in one roof and filing separately their modified adjusted gross income (MAGI) should fall under the range of $107,000 – $122,000. Exceeding it will prohibit you to a full contribution with Roth.
- For joint filers the range for their MAGI will be $169,000 – $179,000 so that they can fully contribute to Roth.
- As for married couples who lives in one roof and filing separately a maximum MAGI limit of $10,000 is imposed.
Roth IRA withdrawal rules (Roth IRA distribution rules) have its concerns mainly on the first withdrawals. To avoid the 10% penalty for early withdrawal from IRA, one should take out money from Roth not before reaching the age of 59 ½ and not before 5 years after establishment of account. As I have said earlier there are exemptions to penalties imposed with early withdrawals. In most cases these exemptions are: withdrawals made after permanent disability of owner; withdrawals upon death of account holder; withdrawals for medical and educational assistance purposes; withdrawals made for first home purchase; withdrawals made for paying IRS levies; and withdrawals made for paying insurance premiums.
Beneficiary IRA rules for early withdrawals are quite unique. I say so because if you have inherited an IRA from your mom or dad or any individual, you can readily withdraw from it without worrying about any penalties. But the 60-day rollover (borrowing money from IRA without paying any taxes and fees if you return it within 60 days) does not apply with inherited IRA’s.