Traditional IRA Withdrawal Rules & Penalties Explained

Saving in a Traditional IRA can be a powerful way to grow retirement savings, but knowing the withdrawal rules is just as important as understanding the tax benefits. Contributions may be fully, partially, or not deductible depending on factors such as your income, marital status, and whether you or your spouse are covered by a workplace retirement plan. Earnings in the account grow tax-deferred, but withdrawals follow specific tax and timing rules.

You can access the money in a Traditional IRA at any time, yet taking funds before age 59½ usually means paying income taxes plus a 10% early withdrawal penalty, unless you qualify for an exception. Once you reach age 73, required minimum distributions (RMDs) also come into play.

Here’s everything you need to know about withdrawing money out of a Traditional IRA.

Withdrawals Made Before Age 59½

Traditional IRA funds can be withdrawn at any time, but distributions before age 59½ typically come with extra costs. You’ll owe income taxes on the amount withdrawn plus an additional 10% early withdrawal penalty, unless you qualify for an exception.

✏️ Hypothetical Example: 

If you withdraw $10,000 before age 59½, you’ll owe income tax on the $10,000 plus a $1,000 penalty.

📝 Note: Traditional IRA withdrawals aren’t labeled as “qualified” like Roth IRA withdrawals. Instead, the focus is on your age and whether an exception applies to avoid the penalty.

How to Avoid the 10% Penalty on Early Withdrawals

Certain situations allow you to take money from your Traditional IRA before age 59½ without paying the 10% penalty. However, you’ll still owe income taxes on the withdrawn amount.

Penalty Exceptions Include:

✅ Death or Disability – Distributions after your death or due to total and permanent disability.
✅ Unreimbursed Medical Bills – Only the portion exceeding 7.5% of your adjusted gross income (AGI) qualifies.
✅ Health Insurance Premiums – You must have received unemployment compensation for at least 12 consecutive weeks and take the distribution in the same year (or the next) and within 60 days after reemployment.
✅ IRS Levy – Amounts withdrawn due to an IRS levy on your IRA.
✅ Higher Education Expenses – For yourself, your spouse, your children, or your spouse’s children or grandchildren.
✅ First-Time Home Purchase – Up to $10,000 per person (lifetime limit). You (and your spouse, if married) must not have owned a principal residence in the two years before acquisition, and funds must generally be used within 120 days of distribution.
✅ Birth or Adoption – Up to $5,000 per parent per qualifying event within one year of the child’s birth or adoption. These amounts can later be recontributed without affecting your annual contribution limits.

❌ Not an Exception for IRAs: Using money to prevent eviction or foreclosure. That hardship exception applies only to certain 401k plans but not IRAs.

Withdrawals Made After Age 59½

Once you reach age 59½, you’re free to take distributions from your Traditional IRA without the 10% early withdrawal penalty. However, these withdrawals are still subject to regular income taxes because your contributions and earnings were tax-deferred.

In contrast, Roth IRA withdrawals are generally tax-free in retirement because you already paid taxes on the contributions.

📝 Note: You’re not required to start taking money out of your Traditional IRA at age 59½. This age simply marks when penalty-free withdrawals can begin.

How Much Taxes Will You Owe?

Taxes on your withdrawals depend on:

✅ Your Tax Bracket – The marginal tax rate you’re in during the year you take the distribution.
✅ Current Tax Rates – Rates in effect at the time you withdraw funds, which may be different from when you contributed.

Because withdrawals are taxed as ordinary income, planning when and how much to take can help manage your overall tax liability in retirement.

Required Minimum Distributions (RMDs)

You can’t keep money in a tax-deferred IRA indefinitely. Once you reach age 73, the IRS requires you to start taking annual withdrawals known as required minimum distributions (RMDs). These rules apply to Traditional IRAs and most employer-sponsored retirement plans.

Roth IRAs have no lifetime RMDs for the original owner. Starting in 2024, designated Roth accounts in employer plans such as Roth 401k plans are also no longer subject to RMDs while the account owner is alive.

📝 Note: Missing an RMD can trigger significant penalties. Tracking your withdrawals each year is critical to staying compliant.

When to Take Your First RMD

✏️ Hypothetical  Example: 

If you turn 73 this year, you have until April 1 of next year to take your first RMD. After that, RMDs must be taken annually by December 31.

Penalties for Missing an RMD

Failing to take the full RMD can result in an excise tax equal to 25% of the amount not withdrawn, which may be reduced to 10% if corrected in a timely manner. This is one of the steepest penalties in retirement planning, so it’s important to plan ahead.

How Much You Need to Withdraw

Your annual RMD is calculated using:

✅ Your Account Balance – The total balance of your Traditional IRA as of December 31 of the previous year.
✅ Your Life Expectancy Factor – Found in the IRS Uniform Lifetime Table (Publication 590-B, Appendix B).

To estimate your RMD:

📌 Tip: Many financial institutions provide RMD calculators, or you can use the official IRS tables to ensure accuracy.

Check your life expectancy factor using the table below:

Age	Life Expectancy Factor	Percentage of Account Balance
72	27.4	3.65%
73	26.5	3.78%
74	25.5	3.93%
75	24.6	4.07%
76	23.7	4.22%
77	22.9	4.37%
78	22	4.55%
79	21.1	4.74%
80	20.2	4.96%
81	19.4	5.16%
82	18.5	5.41%
83	17.7	5.65%
84	16.8	5.96%
85	16	6.25%
86	15.2	6.58%
87	14.4	6.95%
88	13.7	7.30%
89	12.9	7.76%
90	12.2	8.20%
91	11.5	8.70%
92	10.8	9.26%
93	10.1	9.91%
94	9.5	10.53%
95	8.9	11.24%
96	8.4	11.91%
97	7.8	12.83%
98	7.3	13.70%
99	6.8	14.71%
100	6.4	15.63%
101	6	16.67%
102	5.6	17.86%
103	5.2	19.24%
104	4.9	20.41%
105	4.6	21.74%
106	4.3	23.26%
107	4.1	24.40%
108	3.9	25.65%
109	3.7	27.03%
110	3.5	28.58%
111	3.4	29.42%
112	3.3	30.31%
113	3.1	32.26%
114	3	33.34%
115	2.9	34.49%
116	2.8	35.72%
117	2.7	37.04%
118	2.4	40.00%
119	2.3	43.48%
120+	2	50.00%

📌 Source: IRS Publication 590-B — Distributions from Individual Retirement Arrangements (IRAs), Appendix B (Uniform Lifetime Table)

📝 Note: The percentage of your account balance that must be withdrawn increases with age. At 73, the distribution period is 26.5, which equals about 3.78% of your account balance. By age 90, the required withdrawal rises to about 8.2%. RMDs must continue every year until the account is fully distributed.

Can You Withdraw Contributions From a Traditional IRA?

Unlike a Roth IRA, a Traditional IRA does not allow you to withdraw contributions at any age without taxes or penalties. The funds in your account—both contributions and earnings—are treated the same way for withdrawal purposes.

Any money you take out of a Traditional IRA before age 59½ is generally subject to income taxes plus a 10% early withdrawal penalty unless you qualify for an exception.

Do You Have to Pay Taxes When Withdrawing From a Traditional IRA?

Yes. Traditional IRA contributions are made with pre-tax dollars, meaning you haven’t paid income taxes on that money yet. Taxes are deferred until you withdraw the funds in retirement.

When you take distributions, the entire amount (contributions and earnings) is taxed as ordinary income at the rates in effect for the year of withdrawal.

Is There a 5-Year Rule With a Traditional IRA?

No. Traditional IRAs do not have a 5-year rule. This rule generally applies to Roth retirement accounts, such as Roth IRAs, where both age and account age must be met to take qualified distributions.

With a Traditional IRA, you only need to meet the age requirement—59½—to take penalty-free withdrawals. There’s no additional waiting period based on how long your account has been open.

📝 Note: This makes Traditional IRA withdrawal rules simpler than Roth IRA rules, which involve both age and holding-period requirements.

In Summary

Traditional IRA withdrawals follow clear rules. Taking money out before age 59½ usually means paying income taxes plus a 10% penalty unless you qualify for an exception. After age 59½, the penalty goes away but taxes still apply, and at 73 you must begin required minimum distributions to avoid steep penalties.

Reviewing your withdrawal plan regularly and using IRS tables or online calculators can help you estimate taxes and stay on top of deadlines. A little planning can make managing your Traditional IRA much smoother in retirement.

📌 Wondering how to initiate a withdrawal with Carry? Here’s everything you need to know.

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