Early Withdrawal

IRA early withdrawal FAQs

Can I take 72t distributions from a Roth IRA, making Roth IRA early withdrawal?

72t distributions can be taken from Roth IRAs in essentially the same manner as Traditional IRAs. 

However, since Roth IRA contributions can be withdrawn without incurring any taxes or penalties and Roth IRA distributions are always treated as consisting first of contributions, this strategy need only be used for a Roth IRA if you are under 59�/2. and want to withdraw earnings after exhausting contributions. 

May I aggregate the value of two or more IRAs for IRA early withdrawal purposes or 72t distributions?

Yes. 

The IRS allows taxpayers to aggregate two or more IRAs to calculate 72t distributions while taking the entire distribution from just one IRA. 

If I have several IRAs, do I have to apply the 72t calculations to all of them?

No. 

You can choose to take 72t distributions from one IRA account and leave the funds in your other IRAs untouched. 

Moreover, once you have embarked on a 72t distribution schedule from one IRA, you can elect to start another distribution schedule from another IRA at any time. 

Can I stop receiving IRA distributions before the required period?

You may stop your 72t distributions at any time. 

However, if 72t distributions are modified before the end of the required payment period, you will owe a 10% penalty tax, plus interest, on all distributions received before the age of 59�. 

If you don’t need all of the money being distributed to you, you cannot put the distributions back into your IRA. 

You can, however, continue to make contributions, based on earned income, to an IRA, other than the IRA from which you are receiving 72t distributions.

Question: IRS Rules about substantially equal premature IRA withdrawals???

Hypthetical situation: I’m 45 and have enough money in my Roth IRA to retire. Is it really as simple, as using the life expectancy table and dividing my balance by that number each year to withdraw from my Roth so I can never work again? No penalty for early distribution, and no taxes since it is a Roth?

Answer: That is generally correct. Of course, with IRS rules there are additional hoops to go through.

Read the details in IRS Publication 590 (Individual Retirement Arrangements), Roth IRAs, starting with “Are Distributions Taxable?” (starting on p. 65)

http://www.irs.gov/pub/irs-pdf/p590.pdf

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Question: For an early IRA withdrawal for higher education what expenses are allowed that do not incur the 10% penalty?

This would be for my children who are full time students at qualified univerisites.
I understand an IRA can be used for higher education and not incur the 10% penalty for some expenses…but what?
Is room and board allowed if off campus?
What about room and board in my house?
Books?
Supplies?
Transportation?

Answer: Qualified higher education expenses means tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. If the beneficiary is at least a half-time student, certain room and board expenses may also be qualified higher education expenses. The maximum room and board allowance is the amount applicable to the student in calculating cost of attendance for financial aid purposes, or, in the case of a student living in housing owned or operated by the eligible educational institution, the actual amount charged the student by the educational institution for room and board.

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