Penalties from Early Withdrawals

Circumstances may arise where you find it necessary to borrow from your IRA early. There are penalties associated with an early withdrawal. The standard penalty, imposed by the federal government, is 10-percent for early withdrawals taken before age 59 and a half. This is not the only penalty as it comes on top of income taxes paid on said withdrawal.

Required Minimum Withdrawals

At age 70 and a half, you are required to make a withdrawal if you have a traditional IRA. Required minimum distributions (RMD) must be made annually. Penalties of 50-percent of the required RMD amount can be imposed if you fail to make the annual withdrawal.

IRA Withdrawals Can Affect Medicare Premiums

It was modified in 2015, that persons with more than $85,000 income per year will pay increased premiums for Medicare Part B insurance. Prescription drug coverage also costs more. The increase applies to married couples grossing $170,000 or more per year.

Bottom Line

You can avoid having to pay some penalties for early withdrawals. Terminal illness and having to pay for health insurance coverage during periods of unemployment do allow for penalty-free withdrawals. Other life altering situations also fall into that category. It is ideal to be fully aware of your IRAs rules to avoid penalties altogether.

Image credit: Got Credit