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A Guide to the 59 1/2 Rule & Exceptions for IRA Withdrawals

The 59 1/2 Rule

The 59 1/2 rule states that withdrawals from an IRA prior to age 59.5 are subject to a 10% penalty tax; we've listed the exceptions to the 59 1/2 rule below.

What is the 59 1/2 Rule?

The 59 1/2 rule is in place to discourage you from “dipping” into your retirement savings accounts before you turn 60.

Withdrawals taken from a traditional IRA before you are age 59½ are called early distributions. Generally, if you are under age 59½, you must pay a 10% penalty tax on the distribution of any assets (money or other property).

The 59 1/2 Rule early withdrawal penalty tax is in addition to any regular income tax you will pay on the early distribution.

Exceptions to the 59 1/2 Rule

You may be able to avoid the 59 1/2 rule 10% penalty tax if you make a withdrawal for any of the reasons below.

  1. – Certain medical expenses
  2. – Disability
  3. – Qualified higher education expenses
  4. – A first-time home purchase
  5. – A qualified reservist distribution
  6. – Qualified disaster-related distributions
  7. – Qualified military-related distributions
Exception59 1/2 10% Penalty Does Not Apply for:Qualified PlansIRA, SEP, SIMPLE IRA* and SARSEP PlansInternal Revenue Code Section(s)
Ageafter participant/IRA owner reaches age 59½yesyes72(t)(2)(A)(i)
Automatic Enrollmentpermissive withdrawals from a plan with auto enrollment featuresyesyes for SIMPLE IRAs and SARSEPs414(w)(1)(B)
Corrective Distributionscorrective distributions of excess contributions, excess aggregate contributions and excess deferralsyesn/a401(k)(8)(D), 401(m)(7)(A), 402(g)(2)(C)
Deathafter death of the participant/IRA owneryesyes72(t)(2)(A)(ii)
Disabilitytotal and permanent disability of the participant/IRA owneryesyes72(t)(2)(A)(iii)
Domestic Relationsto an alternate payee under a Qualified Domestic Relations Orderyesn/a72(t)(2)(C)
Educationqualified higher education expensesnoyes72(t)(2)(E)
Equal Paymentsseries of substantially equal paymentsyesyes72(t)(2)(A)(iv)
ESOPdividend pass through from an ESOPyesn/a72(t)(2)(A)(vi)
Homebuyersqualified first-time homebuyers, up to $10,000noyes72(t)(2)(F)
Levybecause of an IRS levy of the planyesyes72(t)(2)(A)(vii)
Medicalamount of unreimbursed medical expenses (>10% AGI for 2021, >7.5% AGI; for 2017 - 2020)yesyes72(t)(2)(B)
Medicalhealth insurance premiums paid while unemployednoyes72(t)(2)(D)
Militarycertain distributions to qualified military reservists called to active dutyyesyes72(t)(2)(G)
Returned IRA Contributionsif withdrawn by extended due date of returnn/ayes408(d)(4)
Returned IRA Contributionsearnings on these returned contributionsn/ano408(d)(4)
Rolloversin-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 daysyesyes402(c), 402A(d)(3), 403(a)(4), 403(b)(8), 408(d)(3), 408A(d)(3)
Separation from Servicethe employee separates from service during or after the year the employee reaches age 55**yesno72(t)(2)(A)(v),

**Qualified public safety employees: Qualified law enforcement or firefighter distributionsIn addition, all withdrawals are subject to federal income tax, and depending on the state in which you live, you may be subject to state taxes as well. It is important to check with your tax advisor to determine what tax implications you may incur when taking distributions from your Traditional IRA.

How much can you withdraw from IRA after 59 1/2?

After you turn 59 1/2 you can withdraw as much as you want 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, your distributions will be taxed as ordinary income.

Rules for Early Annuity Withdrawals

Annuity withdrawals made before you reach age 59½ are typically subject to a 59½ Rule 10% early withdrawal penalty tax.

For early withdrawals from a pre-tax qualified annuity, the entire distribution amount may be subject to the penalty. If you withdraw money early from a non-qualified annuity, typically only earnings and interest will be subject to the penalty.

Taxes will ultimately be determined by the specific type of annuity you purchase — either qualified or non-qualified. If you are considering withdrawing from your annuity early, it’s a good idea to speak with a tax professional.

Roth IRA Early Distribution Rules

One of the best ways to avoid paying tax on your IRA distributions is to convert your traditional IRA into a Roth IRA.  Qualified distributions from a Roth IRA are not taxed; however, Roth IRAs can not be accessed right away without penalty.

Qualified Distributions from a Roth IRA

A qualified distribution is any withdrawal or distribution that meets the following requirements.

  1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
  2. The payment or distribution is:
    • Made on or after the date you reach age 59½
    • Made because you are disabled (defined earlier)
    • Made to a beneficiary or to your estate after your death, or
    • Meets the requirements listed under First Home ($ 10,000-lifetime limit).

Required Minimum Distribution Rules ( RMD) 2023

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 paying 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 to 10%. Follow the IRS guidelines and consult your tax advisor. Learn how to calculate your RMD using Smart Assets RMD Calculation and Tables.

72(t) Payment Rule

The 72(t) Rule allows you to take withdrawals from IRA accounts before the age of 59 1/2 without paying the 10% early distribution penalty; given you follow the rules outlined by the IRS.

  • You must take at least five substantially equal periodic payments (SEPPs)
  • You must adhere to the payment schedule for five years or until you reach age 59 1/2, whichever comes later (unless you are disabled or die)

This may sound easy enough but it can actually be difficult to implement and you should consult with your own financial planning, tax, and legal advisors.

  • Rule 72(t) allows you to take penalty-free early withdrawals from your IRA.
  • There are other IRS exemptions that can be used for medical expenses, purchasing a home, and so on.
  • Rule 72(t) withdrawals should be considered a last resort when all other options for reducing financial pressure (creditor negotiation, consolidation, bankruptcy, etc.) have been exhausted.

Next Steps

Jason Caudill, MBA

Jason Caudill, MBA

Jason Caudill is President of My Annuity Store, Inc. and has distributed more than $1.5 Billion of annuities during his career. He believes a lack of access to educational materials and annuity products has hindered the widespread adoption of these strategies in the United States. Jason has been a student of annuities since the age of 21 when was an intern for New York Life Insurance Company. His mission is to help change the way annuities are bought and sold.

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