What should I know about traditional IRA distributions?
You can distribute your Traditional IRA assets at anytime, subject to taxes and penalties. Assets distributed from a Traditional IRA generally are included in gross income in the tax year that they are received unless one of the following apply.
- Distribution is rolled over or transferred to an IRA or other eligible retirement plan
- Distribution of excess contributions removed before the tax return due date, including extensions (but the net interest attributable to the excess is includable in gross income)
- Transfers or rollovers incident to divorce
- Distribution of nondeductible IRA contributions
Taxable distributions from a Traditional IRA are taxed as ordinary income.
10 Percent Early Distribution Penalty Tax
If a distribution is taken from your IRA before the day you attain age 59½, the distribution is included in your gross income and a 10 percent early distribution penalty tax applies. This penalty tax generally does not apply if a distribution is taken because of one of the following reasons.
- Rollover to another IRA or an eligible retirement plan
- Qualifying medical expenses
- Health insurance premiums for unemployed individuals
- First-time homebuyer expenses
- Qualified higher education expenses
- Substantially equal periodic payments
- IRS levy
- Qualified reservist distributions
Required Minimum Distributions
You are required to take distributions from your Traditional IRAs beginning the year you attain age 70½. If you fail to take a required minimum distribution (RMD), you must pay a 50 percent excess accumulation penalty tax on the amount of the RMD that was not distributed. IRA distributions must begin by your required beginning date for RMDs, which is April 1 of the year following the year you attain age 70½. Distributions for each subsequent year must be taken by December 31 of that year.
You can take
- the required amount or
- any amount greater than the required amount.
For more information about RMDs, see a competent tax advisor.