If you take an early withdrawal from your IRA you’ll pay the IRA early withdrawal penalty which is 10% of the withdrawn amount.
For traditional IRAs, ie. non-ROTH IRA accounts, you'll also pay income taxes on the withdrawals.
So when is a withdrawal considered to be early?
An early withdrawal in the case of IRA accounts is any withdrawal that is taken before age 59 1/2.
There is an exception to the early withdrawal penalty rule that allows for treating the IRA account as if it were an annuity.
But this comes with complicated restrictions, so you must consult an expert advisor. Ask them how often they have advised on this topic, too.
This means you would be allowed to take equal withdrawals where the withdrawal amount is based on an annuity formula and your life expectancy.
This is a complicated rule, referred to as the 72(t) exception, so it would be a good idea to consult an IRA tax specialist.
If you get it wrong, you'll owe the penalty plus taxes.
Be aware that the customer service agents at your IRA provider may not be as familiar with these rules as you would like, so use extra care when working with them.
Their first answers may not be correct, as I discovered. Ask them to confirm their advice with their supervisor.
In addition to the early withdrawal penalty, you will need to pay income taxes on portions of the withdrawal that were excluded from taxes originally as well as untaxed gains.
Roth IRA's were already taxed and won't be subject to income tax again.
In the case of 401k withdrawals, if you quit your job between age 55 and age 59 1/2, you will not pay the early withdrawal penalty because this fits the early retirement exception for 401k accounts.
This exception does not apply to IRA accounts, so even if you quit working at age 55, you will pay an early withdrawal penalty for withdrawals from your IRA between age 55 and 59 1/2.
This is a good reason to think about your plans before you roll over to an IRA.
We hope this information has been helpful.
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