Withdrawing Your Traditional IRA Funds

An important age to remember is 59 1/2 years in regard to your IRA.

Why? Because, if you haven't yet reached that magic age and you withdraw IRA monies, the IRS will charge you a 10% penalty on the amount you withdraw in addition to income taxes on the withdrawn amount. However, in certain circumstances, you can withdraw IRA funds early without a penalty.

Exceptions to the Withdrawal Penalty Rule

1. Active military reservists. Active military reservists can withdraw from their Traditional IRAs without penalty at any age. There are specific conditions to be met under this exception, including that you must be serving active duty at the time you make the withdrawal.
   
2. Education costs. If you're paying for education-related costs for yourself, your children, grandchildren, or spouse, you can withdraw your traditional IRA funds early without penalty.
   

• Ensure that you check the IRS's rules about this exception, as the school attended must meet their mandated requirements.
  

3. A first home purchase. You can use up to $10,000 of your IRA funds without penalty if you use the money to help purchase your first home. If you're married, your spouse can also withdraw $10,000 from his or her own account as well.
   

• Technically, you could have owned a home before purchasing the home you're hoping to use your IRA funds for. However, you can't have owned or lived in a home you owned for 2 years prior to the time you're using the funds to buy a house.
  
• If your spouse owns the home you live in, you can't tap into your IRA funds without penalty for a home purchase.
  
• You're required to use the funds within 120 days of obtaining them.
  
• You can use your IRA money as a down payment on a home for your children, grandchildren, or spouse, as well as yourself.
  
  

4. Other qualifying events. You may also withdraw from your IRA without a penalty if certain events occur:
   

• If you become totally disabled, your IRA money is available to you without penalty.
  
• If you aren't employed, you can withdraw from your IRA to pay your medical insurance payments.
  
• If you're the beneficiary of the IRA and the IRA holder dies, you can receive IRA payments.
  
• Also, if you have unexpected, "excessive" medical bills, you can access your traditional IRA money to pay them.

If you withdraw your IRA money for any of these reasons, you'll most likely need to complete IRS Form 5329 to inform the IRS about why you withdrew the money. Also, remember that in all these cases, you must still pay income taxes on the amount you withdraw, just not the 10% penalty.

When You're Required to Withdraw Your IRA Funds

By April 1^st of the year you turn 70 ½ years old, it's required that you begin to pull out your IRA money. The IRA has required minimum distributions (also known as RMDs). If for some reason you haven't begun withdrawing your funds by age 70 1/2, the IRS will tax you a significant amount of money each year you don't take your money.

Ensure you know when and how to withdraw your traditional IRA funds without penalty. Effectively managing your money as you approach your retirement will make the difference between good and great golden years.