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IRA Distribution

What is an IRA Distribution?

  • The term distribution is used to indicate the withdrawal of cash and/or assets from an IRA.
  • An IRA distribution can be taken at any time, though an early withdrawal penalty may apply if this is executed before the account holder reaches age 59.5 - unless certain exceptions are met.
  • Most IRA holders are familiar with the concept of taking a cash distribution, but many are unaware that IRA distributions can be done ‘in-kind’.
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Traditional IRA Distribution

  • A Traditional IRA distribution is taxed as ordinary income for the tax year of the distribution.
  • A 10% penalty is applied if distributed before age 59.5.
  • IRA distributions are optional between ages 59.5 and 70.5.
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Roth IRA Distribution

  • Contributions to a Roth IRA may be distributed without tax or penalty at any time.
  • Conversions may be distributed after 5 years (first in, first out).
  • Distributions of earnings can be distributed without penalty after the account holder reaches 59.5 years of age; as long as the account has been open for at least 5 years.
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SEP IRA Distribution

  • A SEP IRA distribution is taxed as ordinary income for the tax year of the distribution.
  • A 10% penalty is applied if distributed before age 59.5.
  • IRA distributions are optional between ages 59.5 and 70.5.
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SIMPLE IRA Distribution

  • Taxed as ordinary income for the tax year of the distribution.
  • A 10% penalty is applied if distributed before age 59.5.
  • IRA distributions are optional between ages 59.5 and 70.5.
  • The additional penalty is 25% if you take a distribution from your SIMPLE-IRA in the first 2 years of your participation.
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IRA Beneficiary Distribution

  • Inherited IRAs, or Beneficiary IRAs, have specific Required Minimum Distribution rules.
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Solo 401(k) Distribution

  • Taxed as ordinary income for the tax year of the distribution.
  • A 10% penalty is applied if distributed before age 59.5.
  • IRA Distributions optional between ages 59.5 and 70.5.
  • At age 70.5, Required Minimum Distributions begin.
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HSA Distribution

  • You can receive tax-free distributions from your HSA to pay for qualified medical expenses you incur after you establish the HSA. See IRS publication 502 for explanation of QMEs.
  • If you take distributions for something other than qualified medical expenses, the amount you withdraw will be subject to income tax and may be subject to an additional 20% penalty.
  • You may take distributions to pay for qualified medical expenses at any time (there are not required minimum distributions).
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Coverdell ESA Distribution

  • A Coverdell beneficiary is someone who is under age 18 when the account is established, or is a special needs beneficiary.
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