rollover IRA

[carmencjones]

What is the name of your state?

I live in Texas. I have a sizable rollover IRA. I am 57 years old and would like to start drawing an income from it. It is my understanding that , prior to age 59 1/2, I can take one distribution per year without penalty, aside from paying the necessary federal income taxes. After age 59 1/2 I would then be able to take as many distributions as I want. Is this true?


Thank you.

 

[ShyCat]

Not quite. "Substantially Equal Periodic Payments" (SEPP) allow you to withdraw amounts from your IRA before age 59 1/2 without penalty, that is true. The part you missed was that the SEPP payments must continue for at least five years. If you started SEPP payments when you were 50, you'd have to continue them for 9 1/2 years to get past the age 59 1/2 requirement. If you start SEPP payments now at age 57, you'll have to continue them for five years, so you'd be 62 or more before you could withdraw less or more than the required SEPP amount.

 

[DrewfromCA]

In Other Words...

No, you cannot. Don't know where you got that from. Before age 59 1/2, you cannot take any money from an IRA without incurring the 10% IRS premature distribution penalty. This penalty is in addition to the regular income taxes that you will have to pay.

There are some exceptions to avoid the penalty, like disability, first time home purchase, etc., but if you do not meet any, then you will be penalized.

Do you really NEED this money? If not, then leave it in if you can. If you start the SEPPs as shycat suggested, you will need to keep them going for at least 5 years.

If the amount you want is not much, you may just take the money out and pay the 10% penalty so you don't get locked into a 72(t) program(SEPPs). But remember, that 10% adds up.

Also, note that this answer is not intented to represent tax advice, but merely present information to you.