1: There are ways to qualify for a penalty-free early withdrawal.
Usually, if you withdraw money from a traditional, tax-deductible IRA before you reach age 59-1/2, you’ll pay not only ordinary income tax on the money, but also a 10 percent federal tax penalty.1 But there are a few withdrawals that are allowed, with no penalty assessed. You’ll want to discuss the details and restrictions with your tax advisor, but typically these include using the funds to pay for:2
- Unreimbursed medical expenses equaling more than 7.5 percent of your adjusted gross income
- Health insurance if you become disabled, lose your job or are a military reservist ordered to active duty
- Higher education expenses or a first home purchase, up to $10,000 ($20,000 for couples)
How do you calculate age 59-1/2? Easy: Count 183 days from your 59th birthday. At that point, you can generally begin taking penalty-free withdrawals from your IRA for any reason.3
2: It’s up to you to assign, assess and adjust your IRA investments.
That includes making your initial selections of stocks, cash, bonds and so on, as well as adjusting those allocations as you move closer to retirement. If you’d rather work with an experienced financial advisor to make these decisions, we offer IRA management options through our Wealth Management Division.
3: There is a difference between a Roth IRA and a traditional IRA.
Both types of IRAs offer a variety of investment options. The key difference is how they are treated for tax purposes. Here’s a quick overview,1 but consult your tax advisor for complete details and regulations.
||Made before tax
||Normal income tax rates apply
||$5,500/year for people age 49 and under; $6,500/year for ages 50 and up
||Made after tax
- Note: The annual contribution limit is the total that you can contribute to your IRA(s). If you contribute to both a Roth and a Traditional IRA, your combined contributions cannot exceed the limits shown.
4: Withdrawals may be required at a certain age.
Roth IRAs do not require minimum withdrawals at any age, but traditional IRAs do. Specifically, by April 1 of the year after you reach age 70-1/2, you are required to take minimum distributions from your traditional IRA.1 (In following years, distributions must be completed by December 31.) Otherwise, you could face a 50 percent excise tax.1
These are just a few important points to consider when managing your IRA. To ensure you’re making the most of this retirement option, consult with your tax advisor and remember, you can also count on the experts in our Wealth Management Division for assistance.
- IRS Publication 590, Individual Retirement Arrangements, Internal Revenue Service, 2013
- “10 Things You Should Know About Your IRA,” by Emily Brandon, U.S. News & World Report, June 13, 2011, http://money.usnews.com/money/retirement/articles/2011/06/13/10-things-you-should-know-about-your-ira, accessed Dec. 20, 2013
- “The 5 Most Dangerous IRA Mistakes You Can Make,” Dailyfinance.com, May 22, 2012, http://www.dailyfinance.com/2012/05/22/5-most-dangerous-ira-mistakes-you-can-make/, accessed Dec. 20, 2013
The information contained in this article is intended for general educational purposes only and is not to be construed as legal, tax, or financial advice. Please consult with your own legal, tax or financial advisor for guidance with your own particular circumstances.