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How to Withdraw Retirement Funds and Avoid Penalties

Do you know how to withdraw your retirement funds without incurring costly taxes and penalties? After a lifetime of saving for retirement, don’t forfeit your earnings through unnecessary taxes and penalties.

Keep reading to learn the rules for withdrawing from your retirement accounts and how you can withdraw funds without losing money.

How to Withdraw from a Roth IRA

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A withdrawal from your Roth IRA (Individual Retirement Account) is tax- and penalty-free if you’ve held the IRA for more than five years and are at least 59 ½ years of age.

However, your withdrawal may be subject to taxes and penalties if you’ve held the account for less than five years and/or you are less than 59 ½ years old.

The IRS recognizes certain “qualified distribution” exceptions, which exempt you from some early withdrawal penalties. You can avoid penalties if you’ve held the Roth IRA for more than five years and your withdrawal:

Note that early withdrawals used to cover qualified college expenses will be taxed as income, but will not be penalized.

How to Withdraw from a Traditional IRA

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You can make penalty-free withdrawals from a Traditional IRA after you reach 59 ½ years of age. Because your IRA contributions are tax-deferred, you must still pay regular income taxes on any withdrawals you make.

Early withdrawals may generally be made from a Traditional IRA without penalty:

Once you reach 70 ½ years of age, you must begin making Required Minimum Distributions (RMDs) from your traditional IRA, or you will receive a penalty.

Withdrawing from a 401(k) or 403(b)

In general, the IRS rules governing employer-sponsored accounts are similar to those for Traditional IRAs. Penalty-free withdrawals can be made after you turn 59 ½ years old.

Since the specific terms governing your 401(k) or 403(b) are determined by your employer, you should contact your plan administrator for more details on when to withdraw funds.

Consult Your Financial Advisors

Determining when and how much to withdraw from your retirement funds can be a complicated process. Synchrony Bank does not provide tax advice so be sure to contact your tax advisor or financial consultant before you begin making IRA contributions or withdrawals.

Synchrony Bank Helps You Save for Retirement

If you need assistance with your retirement savings plans, Synchrony Bank can help. In addition to our award-winning customer service, our accounts are FDIC-insured up to $250,000 per depositor for each ownership category.

Call Synchrony Bank at 1-844-345-5789 for help with your retirement funds or click here to open an account.

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Sources:

IRS: https://www.irs.gov/publications/p590b/ch02.html#en_US_2016_publink1000231061

IRS: https://www.irs.gov/retirement-plans/traditional-iras


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