When Can You Take Distributions From a Retirement Plan?

When exactly can you take distributions from your retirement plan without incurring tax penalties? You can make penalty-free distributions from your retirement plan after you are age 59 1/2. Of course, you still must pay regular income tax due on any withdrawals (except for qualified distributions from a Roth IRA). And some employer retirement plans do not allow you to take out any funds until you retire from the company.

Before age 59?, you may have to pay a tax penalty on early withdrawals, in addition to the regular taxes you owe on these distributions. The tax penalty equals 10 percent of the taxable amount withdrawn. However, income taxes and the early withdrawal tax do not apply if you properly rollover or directly transfer a distribution to another retirement plan.

At some point during your career, you may face a financial need and decide to meet it by taking money from your retirement plan. Check first with your employer or plan provider; some employer retirement plans enable you to receive a loan from your plan.

There are exceptions to the early withdrawal penalty tax. Check to see whether you meet any of the following exceptions to the early withdrawal penalty tax:

Dividends from employee stock ownership plans (ESOPs) — these are never subject to the early withdrawal tax, regardless of your age.
Substantially equal periodic payments — you receive equal payments from the plan over your expected lifetime or the expected lifetime of you or you and your spouse.
Medical expenses — certain medical expenses are exempt from the early withdrawal tax if they exceed 7.5 percent of your adjusted gross income.
Education expenses — these include tuition and other specific higher education expenses for yourself, your spouse, children, or grandchildren. (Applies to IRAs and Roth IRAs only.)
First-time home purchase — again, the home can be purchased by you, your spouse, or certain other family members. (Applies to IRAs and Roth IRAs only.)
Alimony or child support payments — to qualify, these payments must be made pursuant to a qualified domestic relations order. (Only applies to employer plans.)

Consult a Life Insurance Agent
At no charge to you, a New York Life agent — professionally trained and experienced — can help you analyze your needs and recommend appropriate solutions through insurance and financial products and concepts. Request a no obligation review with a New York Life agent.

This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisors for legal, tax and accounting advice.

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