The early withdrawal from IRA will attract 10% penalty. Further such withdrawn amount supposed to include in the taxable income. However, some withdrawals are free from such penalty. The holder of the account can withdraw, if the person planning to go to school and such school is approved by Internal Revenue Service. Similarly, the holder interested to buying first home can also make early withdrawal. The person can also withdraw for unpaid medical expenses those are covered by an insurance plan. However such withdrawal should not exceed 7.5% of annual salary. No penalty imposed on early withdrawals if the person disabled or death of the holder.
The withdrawal rules indicate that a person can make withdrawal after crossing the age of 70 ½. It means, any person who aged above 70 ½ years can withdraw amount from IRA without involving any penalty. In other words, it is mandatory that the person must withdraw the amount for every year after the age of 70 ½.years. The withdrawal amount can be decided based on the account balance and life expectancy. However a minimum amount to be withdrawn from the account failing the person force to pay 50% penalty on the short fall.
The overview of IRA withdrawals indicates that more attention is to be paid while making early withdrawals from regular IRA. The traditional IRA is non-Roth IRA. The exceptions of early withdrawals from IRA avoids penalty. Therefore the person can withdraw even before reaching the age of 59 ½ by utilizing exceptions properly without any penalty. The early IRA withdrawal also leads to loose the potential future investment growth of the retirement plan. If a person reaches the minimum age of 70 ½ during the 2011, the person should make first minimum withdrawal not later than April 1, 2012.
The IRA withdrawal rules differ from Traditional IRA and Roth IRA.
The IRA account is meant for withdrawal as retirement benefit over years. But due to unforeseen reasons, the holders force to withdraw the amount. If the persons who aged below of 59 ½ years can withdraw the amount from Traditional IRA account subject to 10% penalty. If the withdrawal or distribution is made from the account after the age of 59 ½, the amount is subject to income tax but no penalty is imposed on such withdrawal. Hence it can be understood with the following:
1. A 10% penalty for early withdrawal and the amount is included in taxable income for the persons below the age of 59 ½.
2. No penalty for early withdrawal and the amount is included in taxable income for the persons below the age of 59 ½.. But income tax is payable on such withdrawal.
3. Minimum withdrawal must be begin for the persons below who aged above 70 ½.