What do the different withdrawal reasons mean?
When you’re making a withdrawal, you’ll be asked to choose the reason you want to withdraw money. It’s important that you select the correct reason for your withdrawal as each will have different tax implications. Contact us or speak with your financial advisor if you’re unsure.
Choose early withdrawal if you do not meet the qualified withdrawals requirements for the retirement plan you’re withdrawing from. For most retirement plans, you must be at least 59½ years of age in order to take a withdrawal without being hit with a 10% early distribution penalty. With a Roth IRA, your contributions can be withdrawn at any time, while withdrawals of earnings must be after your Roth IRA is 5 years old, in addition to being at least 59½ years of age.
If you’re at least 59½ years of age, you can start taking withdrawals from your traditional IRA and solo 401k without any penalties. A Roth IRA also has a 5-year rule. In addition to being at least 59½ years old, your Roth IRA must also be 5 years old (5 years must have passed since your first contribution).
Required minimum distributions
Once you reach the age of 73, you’re required to start taking distributions from your account each year until emptied. You must take an RMD from a traditional IRA and solo 401k. A Roth IRA has no RMD requirements and you can keep your money compounding in your account for as long as you’re alive.