A premature IRA distribution occurs when you take money from your IRA before reaching age 59½. If you are under 59½ and withdraw funds from your traditional IRA, you'll probably have to pay a 10 percent penalty tax on the taxable portion of your withdrawal, on top of whatever income taxes you owe on the distribution. This can be a major drawback for IRA owners who need money and have few other assets to draw on. There are a number of exceptions to this rule, however. You may qualify under one of these exceptions to make penalty-free IRA withdrawals.
Premature IRA withdrawals made by a disabled person may be exempt from the penalty. If an IRA owner dies before reaching age 59½, distributions paid to you as a beneficiary are not subject to the penalty. If you need supplementary income, you can take IRA distributions as a series of "substantially equal payments" over your life expectancy or the joint life expectancy of you and your beneficiary. These distributions will avoid the penalty as long as you don't modify the payments within certain time frames.
Subject to limits and conditions, the penalty tax generally will not apply to IRA distributions taken to pay qualifying medical expenses, health insurance premiums while you're unemployed, higher education costs, qualified first-time home-buyer expenses (up to $10,000 lifetime from all of your IRAs), and qualified reservist distributions. The penalty tax also does not apply to amounts rolled over from one IRA to another (assuming you follow the rules for rollovers), to conversions of traditional IRAs to Roth IRAs, or to amounts that the IRS levies from your IRA to cover your tax bill. Other exceptions may also apply.
Qualified distributions from your Roth IRAs are federal income tax--and penalty tax--free. Distributions are qualified if you satisfy a five-year holding period, and you are (a) age 59½, (b) disabled, (c) deceased, or (d) you have qualified first time home-buyer expenses. The taxable portion of nonqualified distributions from your Roth IRAs is subject to the same 10 percent penalty rules that apply to traditional IRAs. (Special rules may apply if you take a nonqualified distribution from your Roth IRA within five years of a conversion.)
Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.
Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.
AXA Equitable Life Insurance Company (NY, NY). Securities are offered through AXA Advisors, LLC, NY, NY 212-314-4600 (member FINRA / SIPC). AXA Equitable and AXA Advisors are affiliated companies, do not provide legal or tax advice and are not affiliated with Broadridge Investor Communication Solutions, Inc.
© Copyright 2016 Broadridge Investor Communication Solutions, Inc. All rights reserved.