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SIMPLE IRA Distribution


SIMPLE IRA Distribution Rules

  
  • SIMPLE IRA distributions follow the same distribution rules as Traditional IRAs, with one significant difference.
    • Early withdrawals generally are subject to a 10% additional tax if taken before age 59.5.  However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation in the plan.
  • Taxed as ordinary income for the tax year of the distribution.
  • 10% penalty if distributed before age 59.5 unless an exception is met (25% if withdrawan within 2 years of beginning participation, see above).  See IRS Publication 590-B for additional information on exceptions.
  • Exceptions to the 10% early withdrawal penalty for distributions before age 59.5 can include:
    • You have unreimbursed medical expenses that are more than 10% (or 7.5% if you or your spouse was born before January 2, 1952) of your adjusted gross income.
    • The distributions are not more than the cost of your medical insurance due to a period of unemployment.
    • You are totally and permanently disabled.
    • You are the beneficiary of a decesased IRA owner.
    • You are receiving distributions in the form of an annuity (which is part of a substantially equal payments over your life or life expentency).
    • The distributions are not more than your qualified higher education expenses.
    • You use the distributions to buy. build or rebuild a first home (up to $10,000).
    • The distribution is due to an IRS levy of the qualified plan.
    • The distribution is a qualified reservist distribution.
  • IRA distributions optional between ages 59.5 and 70.5
  • At age 70.5, Required Minimum Distributions begin.

  • The account holder must begin taking an annual distribution by April 1st of the year following the year in which he reaches 70.5 years of age.
  • The required minimum distribution is calculated by dividing the fair market value of the IRA as of December 31st of the prior year by the life expectancy of the IRA account holder.
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