Early IRA Withdrawals
Understanding the ins-and-outs of how to withdraw from your IRAs (standard and Roth) before age 59 1/2 is enormously important if you plan to retire early. As discussed in the tax deferment and Roth IRA sections, placing your investments in IRAs has enormous benefits. What many people don't know is that the IRS provides ways to withdraw money from IRAs at any age. While the rules are in some cases complicated, taking advantage of IRAs make this an opportunity not worth passing up.
Substantially Equal Periodic Payments, also known by the tax code 72t, provide the ability to withdraw from your IRA at any age, with some pretty serious strings attached. The IRS allows you to calculate what a ’substantially equal payment’, that is, how much you withdraw each year, is in one of three ways:
- Required Minimum Distribution - Divide your account balance your life expectancy
- Fixed Amortization - Payment is calculated by amortizing your account balance over your life expectancy (IRS life expectancy table)
- Fixed Annuitization - Uses an annuity factor to calculate your payment (most complicated option)
Another noteworthy exception is for higher education. College expenses for you, your spouse or children are always exempt from the 10% penalty as long as the course load is full-time.