Do you have questions about retirement? Our retirement experts are here to answer them. Today’s question:
Can I take distributions from my IRA before age 59½?
Yes. And you can do it without paying the 10 percent penalty you may have heard of.
But it’s important to think about why you want to take early distributions. Common reasons include retiring early and for tax purposes (spreading out distributions allows you to take out smaller amounts each year, which could help you manage tax liability better than waiting until you are required to take distributions).
If you take withdrawals from your IRA prior to age 59½, section 72(t) of the Internal Revenue Code applies a 10 percent additional tax to the distribution. An exception to the additional tax is available if you take distributions in substantially equal payments over your life expectancy. The IRS allows you to use one of three methods to determine the withdrawal schedule that will avoid the 10 percent additional tax. You can learn more here.
However, these strategies are very complicated; and if you do it wrong, you could wind up paying a hefty tax bill and penalties, so it’s best to work with a financial and tax professional.
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