Avoid penalties by following the guidelines

Penalty-free withdrawals can be taken from traditional IRAs starting at age 59 ½. When withdrawals—formally called “distributions”—are made, the owner must pay federal and state taxes on the withdrawn amount. That’s because contributions to traditional IRAs are tax-deferred, meaning IRA owners already got a tax deduction in the years they made contributions.

Traditional IRA owners must begin taking annual distributions—called required minimum distributions (RMDs)—from their IRA by the April 1 after the year in which they turn 70 ½. After that, they must be taken every year. The IRS determines the annual amount that IRA owners must take. See IRS Publication 590 for more information. Owners who fail to take RMDs will owe a 50% excise-tax penalty on the required sum not distributed.

Withdrawals before age 59 ½ face a 10% “early-withdrawal” penalty. However, there are other circumstances under which an owner may be able to take penalty-free withdrawals, including:

• Qualified first-time homebuyer expenses (up to $10,000)
• Death or disability
• Unreimbursed medical expenses
• Health insurance, if unemployed
• Qualified education expenses

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