Ira Withdrawal Rules
An IRA is an individual retirement account, created to help the individual save for his or her retirement. IRA withdrawal rules stipulate that anyone who has reached the age of 70 1/2, has to collect the RMD (required minimum distribution) from their regular IRAs. The only exception to this rule is the ROTH IRA.
The RMD depends on the age, life expectancy and the IRA balance of the individual. The IRS has computed three tables on the RMD, based on longevity data. Most IRAs owners utilize Table 3, which is tabulated for singles and married people with spouses of comparable ages. Table 2 is for people with spouses more than 10 years younger.
Even if you do not require the money, you have to make the withdrawal. Otherwise a penalty amounting to almost 50% of the RMD will be imposed. That means if your RMD is USD 1000, your penalty charge is USD 500. To avoid this, you can make the withdrawal and place your money in some other investment or savings programs.
The RMD can be withdrawn on installment basis; however the total amount must be equaled to the annual RMD figure. Under IRA withdrawal rules, all distribution is regarded as income, and therefore subjected to tax. The ROTH IRA withdrawal is the only exception to this rule; as the income in a ROTH account has already been taxed at contribution or conversion time.
According to IRA withdrawal rules, early withdrawal will be subjected to penalty charges. If the withdrawal is before the age of 59 1/2, this is regarded as early withdrawal and subjected to a penalty of 10%. Early withdrawal from a SIMPLE IRA is 10% if the owner has participated in the plan for more than two years, otherwise the penalty is 25%.
There are exceptions to this early IRA withdrawal rule. It includes circumstances in which the withdrawal amount is used to pay for higher education, purchase of a 'first home', domestic relations order or an allowable medical expense. If a person becomes permanently or totally disabled, he can also apply for this exception. IRA temporary withdrawal rules allow the individual to borrow money from his IRA once a year; however the money must be returned within 60 days, otherwise a penalty is charged.