How Do I Tap My IRA?
If you're 59½ or older, follow these steps to access your money.
I’m about to turn 59½ and would like to withdraw money from a traditional IRA to pay my daughter’s college tuition. I’ve been focusing on adding to the account for all of these years. What do I need to do to finally start taking money out?
Once you reach the magic age of 59½, you may withdraw money from your IRA for any reason penalty-free. Your withdrawals from a traditional IRA will be taxed (unlike withdrawals from a tax-free Roth), and you’ll be given the option to have the taxes withheld when the money is distributed.
The specific rules for accessing the money vary from sponsor to sponsor, whether your account is held by a brokerage firm, mutual fund company, or bank. Fidelity customers, for example, may either request their distributions online or call a customer service representative. If you request your withdrawal online, you’ll be able to use an interactive tool that helps you figure out how much federal and state tax you'll owe, although it's up to you to decide whether to have the taxes withheld from your check
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Charles Schwab customers must indicate in writing whether they would like taxes withheld at the time of distribution or whether they will pay the taxes when they file their tax returns. They can do this either by filling out an online-distribution request at Schwab.com (with an electronic signature), or by submitting an IRA distribution request form or a tax-withholding election form for IRAs, both of which are available at Schwab.com or by calling customer service . After you’ve submitted one of these forms, you may request paperless distributions from your IRA in the future. You may take a one-time payment or set up a regular withdrawal schedule.
The brokerage firm will send a Form 1099-R both to you and the IRS showing the amount withdrawn and the taxes withheld. (You should receive a copy of this form by February of the year after you take the IRA distribution.) Because you’ll be 59½ or older when you take the money, you won’t have to pay an early-withdrawal penalty. If you were younger than 59½, your 1099-R would say “early distribution -- no known exception.” People younger than 59½ may take IRA withdrawals penalty-free for college costs, but they need to file IRS Form 5329 specifying that the IRA distribution was used for eligible college expenses, in order to avoid the early-withdrawal penalty. (See Instructions for Form 5329 for details.)
Money withdrawn from a traditional IRA is taxable in your top income-tax bracket, except to the extent that it represents a return of nondeductible contributions. If you’ve ever made nondeductible contributions or rolled over after-tax amounts to a traditional IRA, you must complete IRS Form 8606, which is used to figure the nontaxable distributions and total IRA basis for the current year and earlier years, and attach it to your tax return (see IRS Publication 590, Individual Retirement Arrangements, for details.
Got a question? E-mail Kim at askkim@kiplinger.com.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Average Net Worth by Age: How Do You Measure Up?
Financial advisors discuss the secrets to growing your net worth over time.
By Adam Shell Published
-
Three Charitable Giving Strategies for High-Net-Worth Individuals
If you have $1 million or more saved for retirement, these charitable giving strategies can help you give efficiently and save on taxes.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Getting Out of an RMD Penalty
retirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
By Kimberly Lankford Published
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
By Kimberly Lankford Published
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
By Kimberly Lankford Published
-
How to Correct a Mistake on Your RMDs from IRAs
retirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
By Kimberly Lankford Published
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
By Kimberly Lankford Published
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
By Kimberly Lankford Published
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
By Kimberly Lankford Published
-
When You Can Expect to Receive Your Tax Refund
taxes The quickest way to receive your tax refund is to file electronically and have the money directly deposited into your bank account.
By Kimberly Lankford Published