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.

  1. Distribution is rolled over or transferred to an IRA or other eligible retirement plan
  2. 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)
  3. Transfers or rollovers incident to divorce
  4. 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.

  • Death
  • Disability
  • 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.

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