Traditional and Roth IRA withdrawal rules

Traditional and Roth IRAs are both designed for retirement savings, but each has its own set of withdrawal rules. Knowing how they work can help you avoid penalties, limit taxes, and make better long-term choices.

When can you withdraw from a Roth or traditional IRA?

Technically, you can take money out of an individual retirement account (IRA) whenever you want. But, depending on the type of IRA you have, there may be a penalty if you do so before retirement age. IRAs are designed for retirement income, and you should have a plan for how and when you want to make withdrawals, such as following the 4% rule. Here are some basics to understand:

Traditional IRAs
Contributions are pre-tax. Withdrawals are generally taxed as income in the year that you take them. Withdrawing money before age 59½ usually triggers a 10% penalty (unless you qualify for an exception).

Roth IRAs
Roth accounts work differently. Contributions are after tax, so you can withdraw them at any time tax- and penalty-free. However, there are stricter rules on taking out any earnings on your investments.

IRA withdrawal ages

The standard age for penalty-free withdrawals is 59½. Both traditional and Roth IRAs are designed for withdrawals to start after this age. If you withdraw money before this, not only will you pay taxes, but you might also be hit with an additional 10% penalty. Age 73 is also important. With a traditional IRA, you will likely need to begin taking required minimum distributions (RMDs) at this age.

Traditional IRA withdrawal rules

Traditional IRAs are more common than Roth IRAs, as they allow you to make contributions in a tax-advantaged way. Withdrawal rules are fairly strict, especially before retirement age. You can take money out at any time, but withdrawing before age 59½ usually means paying income taxes and a 10% penalty. After 59½, you can withdraw without the penalty, although the money is still taxed as regular income.

How are traditional IRA withdrawals taxed?

Since contributions are generally made with pre-tax dollars, traditional IRA withdrawals are taxed as regular income in the year you take the money out. The same as wages or salary for tax purposes. This is usually beneficial since you are not paying taxes on contributions during your prime earning years, and are instead paying them in retirement when your taxable income is often lower.

Traditional IRA early withdrawal penalties

Taking money out of a traditional IRA before age 59½ usually triggers an early withdrawal penalty. In most cases, you will pay regular income taxes on the amount you take out plus an additional 10% penalty. There are a few situations where the penalty can be avoided (see hardship withdrawals below). Even when the penalty is waived, the withdrawal is still taxed as income.

Mandatory IRA withdrawal age

With traditional IRAs, you must begin taking required minimum distributions at age 73, which means withdrawing a certain amount each year even if you do not need the funds. This age is set by the IRS to ensure that account holders can’t avoid taxes indefinitely. These withdrawals are taxed as regular income. Roth IRAs do not have mandatory withdrawals during your lifetime.

Hardship withdrawals from a traditional IRA

A hardship withdrawal from a traditional IRA is when you take out money early for a qualifying need. The IRS allows some exceptions that let you avoid the 10% penalty, but the withdrawal is still taxed as regular income. Common exceptions include:

• Certain medical bills
• Qualified education costs
• Birth or adoption expenses
• Disability
• Up to $10,000 for a first-time home purchase

Even if the penalty doesn’t apply, taking a hardship withdrawal still reduces your future retirement savings, so it’s worth using only when truly necessary.

Roth IRA withdrawal rules

Roth IRA withdrawal rules are more flexible and give you breathing room with how you manage the account, but they do have some additional rules like income limits. If you don’t qualify for a Roth IRA, there may still be ways you can use this valuable planning tool, like a backdoor Roth IRA. You can always take out your contributions to a Roth IRA tax- and penalty-free because you already paid taxes on that money before contributing it. However, earnings are treated differently.

Early withdrawal from a Roth IRA

An early withdrawal from a Roth IRA is when you take money out before you meet the age 59½ and five-year requirements. You can always withdraw your contributions early without taxes or penalties, but taking out earnings too soon may trigger taxes and a 10% penalty. Contributions are always accessible, while earnings have stricter rules.

How are Roth IRA withdrawals taxed?

Roth IRA withdrawals are taxed differently depending on what you take out. Your contributions are always tax-free because you already paid taxes on that money before making contributions. After age 59½, withdrawing earnings is also tax-free, as long as the account is at least five years old.

Comparing the withdrawal rules of traditional and Roth IRAs

We’ve covered most of the differences between traditional and Roth IRA rules above, including early withdrawal and tax differences. If you are deciding which might be best for your retirement, a financial professional can help you plan for the future. In the meantime, here are a few of the differences summed up:

IRA withdrawal rules FAQs

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