Distributions from Traditional IRAs: Prior to Age 59½

In general

A withdrawal from an IRA is generally referred to as an IRA distribution. If you receive a distribution from your traditional IRA before you reach the age of 59½, the federal government considers this a premature distribution. Like all distributions from traditional IRAs, premature distributions are generally taxable. You will pay federal (and possibly state) income tax on the portion of the distribution that represents tax-deductible contributions, any pre-tax funds that were rolled over into the IRA from an employer-sponsored retirement plan, and investment earnings. In addition to regular income tax, distributions taken prior to age 59½ may be subject to a 10 percent federal penalty tax (and possibly a state penalty) on the taxable portion of the distribution. You can avoid this federal penalty (known as the premature distribution tax) only if you are age 59½ or older at the time of the distribution, or if you meet one of the exceptions allowed by the IRS (see below).

You’re probably wondering why your age at the time of distribution should matter and possibly result in a penalty on the distribution. The purpose of IRAs and retirement plans is to provide income to help fund your retirement years, and the federal government wants to make sure you use the money for that purpose. To accomplish this goal, the government imposes a penalty tax on taxable distributions taken before age 59½. The penalty tax encourages you (and other IRA owners and plan participants) to leave your money in the IRA or plan until that age or later. This, in turn, reduces the risk that you will deplete your funds prematurely and run out of money at some point in retirement. The assumption is that by the time you reach age 59½, you are either already retired or near retirement and can safely begin using your retirement money.

Tip:    Roth IRAs are subject to special rules with regard to the premature distribution tax. For more information, see Roth IRAs.

Caution:    Special rules apply to qualified individuals impacted by Hurricanes Katrina, Rita, and Wilma (see Special Hurricane Katrina, Rita, and Wilma Distribution Provisions) and to qualified reservist distributions.