There are a variety of IRA (individual retirement arrangements) to choose from, all providing some sort of tax credit or tax advantage to help you prepare for your retirement years. A normal withdrawal is known as a qualifying distribution, according to the Internal Revenue Service. Failure to comply with IRS regulations may result in punitive damages.
Traditional IRAs
If you withdraw any funds from your traditional IRA prior to reaching the age of 59 1/2, the IRS states that the transaction will be considered an early withdrawal. You will be assessed an additional tax on top of the regular federal or state tax already in place. IRS regulations usually have this additional amount as 10 percent.
The IRS requires you to make minimum withdrawals from your traditional IRA throughout the year. You are not allowed to keep them in the account indefinitely. You are required to make the distribution after you turn age 70 1/2. The withdrawals can be made monthly, quarterly or at other times more convenient to you. The exact amount of the minimum withdrawal is based on a variety of items such as whether you are the owner or beneficiary, your filing status and income level. Determining factors of the minimum withdrawal amount is found in IRS Publication 590.
Roth IRA
The IRS states that there are two types of withdrawals, or distributions, to be concerned about if you own a Roth IRA. These two types are a qualified distribution and an early distribution. A qualified distribution must happen no sooner than five years after you make your first contribution into the Roth IRA. You also must be at least 59 1/2 years of age in order to have a qualified distribution.
The IRS has a regulation in place regarding early distributions. If you make a withdrawal prior to the five-year period or before reaching the age of 59 1/2, the IRS usually imposes a tax penalty upon you. You may not be assessed this tax penalty if you are disabled, using the funds to pay for higher education or are a first-time home buyer.
Unlike other IRAs, the IRS has a regulation in place stating no withdrawals are required to be made from a Roth IRA account, according to IRS and financial retirement site Money-zine.com.
SIMPLE Plans
Withdrawals can be made at any time from a SIMPLE (Savings Incentive Match Plan for Employees) plan, though there is a two-year rule. This rule states that if you make the withdrawal within two years after participating in your SIMPLE plan, the early withdrawal tax will increase from 10 to 25 percent. You also need to be at least 59 1/2 years of age to not receive any early distribution penalties from the IRS. The withdrawal amount needs to be included in your gross income in the year it was received.
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