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Your Bank > Education and Advice > CNB University

Can I Take Money from My IRA Without Any Penalty?

M Mazzochetti 2014
Mark S. Mazzochetti, CISP is Vice President - Retirement Services Officer and can be reached at MMazzochetti@CNBank.com or (585) 419-0670 x50606.

It depends. If you are 59½ or older, you can take money from your traditional IRA without penalty. In contrast, if you withdraw from your IRA before age 59½, the taxable portion of your distribution may be subject to a 10 percent penalty on top of whatever income taxes you owe on the distribution. This penalty, known as the premature distribution tax, is intended to discourage people from exhausting their IRA funds before they retire.

However, there are some exceptions to this rule. Premature IRA withdrawals made by a disabled person may be exempt from the penalty. If an IRA owner dies before age 59½, distributions paid to you as a beneficiary of the account are not subject to the penalty. If you need supplementary income, you can take IRA distributions as a series of "substantially equal payments" over your life expectancy or the joint life expectancy of you and your beneficiary. These distributions will avoid the penalty as long as you don't modify the payments within certain time frames. Subject to limits and conditions, the penalty tax generally will not apply to IRA distributions taken to pay qualifying medical expenses, health insurance premiums while unemployed, higher education costs, and qualified first-time home-buyer expenses (up to $10,000 lifetime from all your IRAs). It also does not apply to amounts rolled over from one IRA to another (assuming you follow the rules for rollovers), to conversions of traditional IRAs to Roth IRAs, to amounts that the IRS levies from your IRA to cover your tax bill, or to qualified reservist distributions. Other exceptions may also apply.

Qualified distributions from your Roth IRAs are federal income tax--and penalty tax--free. Distributions are qualified if you satisfy a five-year holding period, and you are (a) age 59½, (b) disabled, (c) deceased, or (d) you have qualified first time home-buyer expenses. The taxable portion of nonqualified distributions from your Roth IRAs is subject to the same 10 percent penalty rules that apply to traditional IRAs. (Special rules may apply if you take a nonqualified distribution from your Roth IRA within five years of a conversion.)

How CNB Can Help

If you would like to discuss in more detail, I am available to answer any questions you may have. Please call me today at (585) 419-0670, ext. 50606 or MMazzochetti@CNBank.com.


Source: ©2016 Broadridge Investor Communication Solutions, Inc. This material provided by Mark Mazzochetti, CISP.

 

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Canandaigua National Bank & Trust does not provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.