Traditional IRA Withdrawal Rules

Traditional IRAs can be a smart solution to increase your tax-deferred retirement savings.

With a Traditional, Rollover, SEP, or SIMPLE IRA, you make contributions on a pre-tax basis (if your income is under a certain level and certain other qualifications) and pay no taxes until you withdraw money. IRA withdrawal rules and penalty details vary depending on your age.

Age 59½ and under: Early IRA withdrawal penalties—with some exceptions

Your deductible contributions and earnings (including dividends, interest, and capital gains) will be taxed as ordinary income. The U.S. government charges a 10% penalty on early withdrawals from a Traditional IRA, and a state tax penalty may also apply. You may be able to avoid a penalty if your withdrawal is for:

First-time home purchase Some types of home purchases are eligible. Funds must be used within 120 days, and there is a pre-tax lifetime limit of $10,000.
Educational expenses Some educational expenses for yourself and your immediate family are eligible.
Disability or death If you're disabled, you can withdraw IRA funds without penalty. If you pass away, there are no withdrawal penalties for your beneficiaries.
Medical expenses You can avoid an early withdrawal penalty if you use the funds to pay unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (AGI).
Birth or adoption expenses New parents can now withdraw up to $5,000 from a retirement account to pay for birth and/or adoption expenses penalty-free.
Health insurance If you're unemployed for at least 12 weeks, you may withdraw funds to pay health insurance premiums for yourself, your spouse, or your dependents.
Periodic payments You can avoid an early withdrawal penalty if you choose to receive your funds on a regular distribution schedule1.
Involuntary distribution If a distribution is the result of an IRS tax levy, IRS Form 5329 explains how to claim your penalty exception.
Reservist distributions Members of the National Guard and reservists can take penalty-free distributions if they are called to active duty for at least 180 days. Some restrictions apply.

Age 59½ and over: No withdrawal restrictions

Once you reach age 59½, you can withdraw funds from your Traditional IRA without restrictions or penalties. You can make a penalty-free withdrawal at any time during this period, but if you had contributed pre-tax dollars to your Traditional IRA, remember that your deductible contributions and earnings (including dividends, interest, and capital gains) will be taxed as ordinary income. In other words, you will now owe the taxes that you originally deferred. You can keep taking advantage of tax-deferred contributions regardless of your age, as long as you have earned income. But, you will be required to start taking Required Minimum Distributions for the year you turn age 73. Learn more about Traditional IRA rules.

Age 73 and over: Required Minimum Withdrawals are mandatory

Once you turn 73, you must start taking annual Required Minimum Distributions (RMDs) from your Traditional IRA. Your first RMD must be taken by April 1 of the year following the year you reach age 73. Every year thereafter you must take an RMD by December 31. The amount of your RMD is calculated by dividing the value of your Traditional IRA by a life expectancy factor, as determined by the IRS. You can always withdraw more than the RMD, but remember that all distributions are taxed as income. If you don't make withdrawals, you'll be subject to pay a penalty.

The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023, it does not impact missed RMDs in 2022.  Under SECURE 2.0 if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced down to 10%. Follow the IRS guidelines and consult your tax advisor. Learn more about RMDs.

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disclosure-on page

1 Schwab does not currently perform these substantially equal periodic payment (72(t)) calculations. You should speak with a tax advisor. Find more information on these calculation methods in IRS Revenue Ruling 2002-62.

This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager. Depending on the type of account you have, there are different rules for withdrawals, penalties, and distributions.  Please understand these before opening your account.

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