When Can You Withdraw From Your IRA?

by | | Retirement, Taxes

When can you withdraw from your IRA?  This is really a three-part question:

  • When can you withdraw?
  • What tax will you owe?
  • What penalty will you owe?

See also our companion post: When can you withdraw from your 401(k)?

When can you withdraw from your IRA?

You can withdraw from your IRA anytime. Simple as that.

What tax will you owe?

Pre-tax IRA

Withdrawals from a pre-tax IRA are taxed as ordinary income.

Put simply, a pre-tax IRA is any IRA that’s not a Roth IRA. More specifically, a pre-tax IRA means:

  • A Traditional IRA to which you made annual contributions.
  • A Rollover IRA into which you rolled over money from a previous 401(k) or similar retirement plan.
  • A SEP or SIMPLE IRA.

How much tax you’ll owe depends on your individual situation:

  • A full-time practicing ER doc will pay at least 24% federal income tax, if not 32% or more (2022), plus state income tax if any.
  • A retired ER doc could pay as little as 12% federal income tax (2022) with careful planning.

Roth IRA

Withdrawals from a Roth IRA are tax-free in two cases: withdrawal of contributions, and qualified distributions.

Withdrawal of contributions

You can always withdraw Roth IRA contributions tax-free and penalty-free, no matter what. And, contributions are treated as coming out first.

Example: Say you’ve contributed $50K to your Roth IRA and it’s now worth $100K.

In this case, your first $50K of withdrawals is tax-free and penalty-free. After that, you’ll have $0 of contributions and $50K of earnings left.

Qualified distributions

A distribution from a Roth IRA is qualified, and therefore tax-free, if you meet both of the following conditions:

  • You’ve had a Roth IRA for at least five years. It doesn’t have to be this Roth IRA; it can be any Roth IRA.
  • The distribution is:
    • Made on or after the date you reach age 59.5; or
    • Made due to disability; or
    • Made due to death; or
    • Made for a first-time home purchase (up to $10K lifetime limit).

In the example above, your Roth IRA now has $0 of contributions and $50K of earnings in it.  To withdraw the $50K earnings tax-free, the distribution must be qualified. The most common case is that you’ve had a Roth IRA for at least five years, and you’re over age 59.5.

What penalty will you owe?

Before age 59.5

Withdrawals from pre-tax IRAs, and withdrawals of Roth IRA earnings, before age 59.5 are subject to a 10% early withdrawal penalty. Your state may tack on a penalty too.

There are several exceptions to the 10% penalty. A full list is here. The most relevant ones for ER docs are below.

  • Disability.
  • Death.
  • First-time home purchase (up to $10K lifetime limit).

After age 59.5

There is no 10% penalty on IRA withdrawals after age 59.5.

Withdrawals of Roth IRA earnings over age 59.5 are subject to tax, but not penalty, if you haven’t had a Roth IRA for five years.

We help ER docs get the income they need in retirement, as tax-efficiently as possible. To learn more, schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.

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