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Distributions from traditional IRAs – what you need to know.

By: Diane Avila

There are three areas where knowing the ins and outs of the traditional IRA distribution rules can make a big difference in how much you and your family will keep after taxes:

  • (1) Early distributions. If you need to take money out of a traditional IRA before age 59-1/2 (e.g., for education expenses for children, to help make a down payment on a new home, or to meet necessary living expenses if you retire early), any distribution to you will be fully taxable (unless nondeductible contributions were made, in which case part of each payout will be tax-free). In addition, distributions before age 59-1/2 may be subject to a 10% penalty tax. However, there are several ways that the penalty tax (but not the regular income tax) can be avoided, including a method that is tailor-made for individuals who retire early and need to draw cash from their traditional IRAs to supplement other income.

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