By: Clay Wyatt
The best time to take IRA withdrawals depends on your life situation and what other assets you have, among other things. As everyone's life situation is at least a little different, a definitive answer as to when you should make IRA withdrawals is a decision best left to you and a financial professional. However, here is some information that can help point you in the right direction.
In most cases, an IRA withdrawal prior to age 59 ½ will incur a 10 percent penalty in addition to any taxes that are owed on the withdrawn funds. It's very difficult to justify taking a 10 percent hit unless you are in a desperate situation. It is almost always best to consider using other assets to pay for urgent expenses instead of making IRA withdrawals. Doing so will allow you to avoid having the IRS take a 10 percent cut in addition to normal taxes - a very good idea if you are already in financial trouble.
The few exceptions that are out there generally involve you needing a substantial amount of money for a serious life expense, such as medical care or a home. If you have exhausted all other sources of funding and desire or must proceed with making IRA withdrawals for such expenses, it is best to consult a financial professional before making any decisions. After all, nobody wants to make a difficult financial situation worse.
Your best bet is to wait until you are at least age 59 ½ to make IRA withdrawals. From this age on, you are permitted to make IRA withdrawals without incurring any penalties from the IRS. You will still owe any required taxes on this money, but you have to pay those no matter when you take the money out, so it is not an additional penalty slapped onto your withdrawal in that sense. As always, it is important to keep in mind that, even though you are free from IRS penalties at this point, this money must last the rest of your life.
Waiting until age 70 ½ to make IRA withdrawals is an option for those who have alternative sources of funds, such as a job or other retirement assets. Waiting until this age will allow you to maximize the benefits of tax-deferred growth on your investments. At this point in your life, you must begin making IRA withdrawals of at least a minimum amount based on your remaining life expectancy, which is determined by the IRS. This is known as a required minimum distribution (RMD).
Deciding when to take IRA withdrawals is ultimately a decision that you will have to make. Given that hundreds of thousands, maybe even millions of dollars are at stake, it is imperative that you consult with a retirement consultant unless you have a substantial knowledge of how to manage your assets. Together, you and your financial professional can make the best decisions on when to take your IRA withdrawals and on keeping the IRS out of your life.
Lose a Fortune on Your 401k Rollover
If you do not do any of these correctly:
- Opt for a distribution rather than direct transfer
- Rollover company stock to an IRA
- Choose to rollover to a Roth IRA
- Rollover to your new employer’s 401k
- Rollover post-tax contributions