So the magic time, the time of retirement, has not quite come yet. But you need access to the funds in your IRA. Of course you know, accessing funds from your IRA can incur penalties if you do so early. But you need access to your money now. What are the best ways to go about withdrawing funds from your IRA to avoid paying penalties and higher taxes? In other words, what are the notable IRA withdrawal rules? Let’s get to the bottom of it.

Requirements for accessing your IRA

So what is the magic age? When can you start your IRA withdrawal? Generally, that magic number, the age when you can start drawing funds from your IRA, is 59 ½ years old. Be aware however that you can indeed start drawing money from your IRA before that age, but you will be hit with a 10% premature withdrawal penalty. There are of course ways around paying that 10% penalty.

Accessing Your IRA early without penalties

Of course, there are ways you can access your IRA before the age of 59 ½ and still avoid paying penalties. There are some IRA withdrawal rules exceptions or special situations. One way of doing this is to annuitize your account. When you annuitize your IRA, you are stipulating that for five years (or until you reach the official age of retirement) you will be taking cash withdrawals from your account. The tricky thing with this method is that you must present to the IRS your life expectancy. The IRS will calculate how long they believe you have to live, then allow you to withdraw a percentage of that every year. Say the IRS says you have 10 years to live. Then you can take out 1/10th of your money for 10 years. This is not a simple method. If you are curious about this method though, we suggest highly that you consult a professional with experience with these IRA withdrawal rules.

This IRA withdrawal rule of course is for the traditional IRA. In a Roth IRA, you may withdraw funds at any time without penalty. Be aware however that after you withdraw them you cannot replace them.

Take a loan against your IRA

Another option would be to take a loan against your IRA. The IRS allows up to a 60-day loan against assets in your IRA. In this 60 days you can access your funds tax-free and without penalties. This is viewed by the IRS as the same as a non-taxable rollover. Just be sure that you return the funds within that 60-day period or you will get hit with penalties and subject to taxation on that money. There are also limitations on how often you can take a loan out on any one account. You may only borrow money once per year against your IRA.

Special situations for withdrawal, penalty-free

First-time home buyers: Up to as much as $10,000. If you are married, and you both have IRAs then you can both withdraw $10,000 each, giving you a total of $20,000 to put toward that very first home. And the definition of first-time homebuyer is a bit lax, too. Technically, this doesn’t really even have to be your very first home. You actually qualify if either of you have not owned a home within the two years prior to purchasing the new home. And in fact, even an IRA owned by your children or even your grandparents can qualify. The US government is always trying to help homebuyers, and this is just another method for helping them do so. Be careful also not to withdraw the funds until you come close to the time of actually needing them. There is a limit between the time of withdraw and the time of purchase. Generally speaking, that time limit is 120 days, barring any unforeseen incidents. When buying a pre-existing home this usually does not pose a problem, but when building the house yourself, there are all kinds of snags and delays you may run into. Schedule your loan calendar very carefully.

Costs involved with education: This includes all your family, for school up to college and even beyond. Expenses that qualify are not just for tuition but also include books, supplies and room and board. Now, make sure to verify that this particular institution you’re looking to attend is an IRS-approved institution. Any college, university, or vocational school can qualify, but they must do so under the federal student aid program first. The school can be private or public, just as long as it is accredited.

Disability: You can also qualify for an exemption under the disability act. You must however prove that you are indeed disabled and cannot work. This means that a physician must determine that you indeed cannot work for any substantial period, or enough as stated that you could earn a living wage. Just being able to work ten hours a week would not necessarily disqualify you from the disability clause, while if it is determined that you cold indeed work a forty-hour workweek, you may not qualify.

Medical expenses: You may also withdraw money from your IRA for medical expenses, although these expenses cannot exceed 7.5% of your total AGI, Adjusted Gross Income. This means basically that if you are deemed to have the money, to be able to afford to pay all or most these expenses, there are limitations. The IRS is not going to let you withdraw money from your IRA penalty-free if they deem that you can find the money elsewhere, or come up with an arrangement with the medical provider to pay.

Health insurance while unemployed: If you lose your job you may of course lose your health insurance. There are provisions that provide that you can access the money in your IRA and use it to pay for your health insurance premiums. There are certain stipulations however, one being that you must have been collecting unemployment for at least twelve consecutive months.

Beneficiary of an IRA: if you were to die before such time that your IRA is due for distribution, then the beneficiaries of your IRA can have that money distributed to their estate without penalty.

The Armed Forces: if you are indeed an active member of the United States Armed Forces, and you are called to active duty, there are provisions that will allow you to access the money in your IRA without penalties. Especially nowadays, this happens more and more often. You have a good job and the expenses that go along with it. Once you are called to active duty, that good paycheck ceases to exist and a much lower paycheck replaces it. This of course is not your doing, and you should not be penalized for serving your country. There are of course stipulations. You must be called to active duty for a period of greater than 179 days. The money is distributed only between the times of the initial call to active duty and such time that that period ends. This also applies only to those members of the armed forces who were called to active duty after September 11, 2001.

IRS levy: If God forbid you ever are audited by the IRS and it’s found that you owe back taxes, and it comes to the point of the IRS placing a levy on your property or even your bank accounts, the IRS does allow a waiver from penalties to access this money to pay your back taxes. One note however: if you do this voluntarily before the levy is placed, it does not qualify.

Withdrawing money from your IRA later instead of sooner

Now of course what if the opposite is true for you? What if instead of wanting to withdraw money early for a home or school or medical bills, you have the exact opposite problem. You have enough money already, or maybe you have a good pension that’s already kicked in or your social security benefits plus your savings can tide you over for now. What if, God forbid, you don’t even need the money in your IRA yet and you want to continue to let it grow, to gain interest? Well, if you do run across this terrible dilemma, let it be known that there is an age where you must start withdrawing money from your IRA.

You must begin IRA withdrawal by the age of 70 and ½. By April 1 of the year after you reach the age of 70 and ½, IRA withdrawal rules require you to begin taking out your minimum withdraws. This is called your minimum distribution. This figure is reached by calculating your account balance and your life expectancy. The longer you are expected to live, the less you are required to withdraw. Be aware that if you do not withdraw the minimum amount every year after reaching the age of 70 and ½, you will be penalized 50% on that amount that should have been withdrawn.

Calculating just how much you should withdraw

These IRA withdrawal rules are some of the most complicated in all the tax code. But trying to state them simply, every year both your account balance and your life expectancy are going to change, so this figure will need an annual adjustment. The IRS calculates your life expectancy upon their own tables. But basically there are 3 tables:

The uniform lifetime distribution table: this is the table used by the majority of IRA owners after reaching the maximum age of 70 and ½. The only people who will not use this table are generally those whose spouse is the beneficiary and who is also more than 10 years their junior. Said beneficiaries do not ever use this table.

Joint life table: this table is only used when the spouse is the sole beneficiary and is not more than ten years their junior.

Single life table: this table is used only when minimum distributions are applied to inherited IRAs.