Posted on | July 24, 2012 | 1 Comment
IRA Tax Penalty
If you are wondering if there is an IRA tax penalty for withdrawing money from an IRA early, the answer is yes.
It is best if you do not touch your money and let it accumulate as long as you can. If you decide to withdraw any money before the age of 59 and a half, the money will be subject to an early withdrawal penalty of 10% of the amount of distribution. By withdrawing your money early, you are losing tax free compounding which can cost you lots of money by the time you retire.
The early withdrawal does not apply to distributions that happen because of the IRA owner’s disability, the IRA’s death, that are used to pay for reimbursed medical expenses that are more than 7 1/2% of adjusted gross income, and are used to pay the costs of a first home. Also, when they are used to pay for the qualified expenses of higher education for the owner of the IRA or eligible family members and more.
Once you have turned 59 and a half, you can withdraw the money from your IRA whenever you like without receiving a penalty. This money can be used to live off of or whatever you wish to do with it.
So if you have an IRA, it is better to wait until you are old enough to withdraw money from it so you do not get a tax penalty on it.