An individual retirement account is an investment tool that allows you to plan for your future. Your contributions grow tax-deferred within the account. A traditional IRA is funded with pre-tax dollars, which you can deduct on your taxes. At the time of withdrawal, you are taxed on the entire distribution. A Roth IRA doesn't offer a tax deduction, but you do not pay any taxes on your earnings. Both accounts follow similar Internal Revenue Service guidelines for withdrawals. Regardless of which account you own, withdrawals are generally discouraged until you retire.
To begin taking qualified withdrawals from a traditional IRA, you must be at least 59-1/2 years of age. Withdrawals before that age are generally subject to the 10 percent tax penalty along with ordinary income taxes on the distribution. If you have a Roth IRA, the same age restrictions apply. The account must also be established for at least five years before you can take withdrawals. Unlike a traditional IRA, a Roth IRA allows you to withdraw your contributions at any time. As long as you keep the earnings in the account, you will not be penalized.
Required Minimum Distributions
You don't have to take withdrawals at 59-1/2. You can allow your investment to grow a little longer. At age 70-1/2, you must begin taking required minimum distributions each year if you have a traditional IRA. The exact distribution amount changes annually. The amount is calculated by dividing the account balance, as of Dec. 31, by the distribution period determined by the IRS. A Roth IRA allows you to continue contributions beyond age 70-1/2 and doesn't require mandatory distributions at any age.
The IRS allows you to tap into your IRA early to pay qualified higher education costs for yourself, spouse, children or grandchildren. The student must attend an accredited college, university or vocational school that meets the federal student aid program requirements. You can use your funds to cover tuition, required fees, books, supplies and necessary equipment. For students enrolled at least half time, room and board are also qualifying expenses.
Buying a Home
The IRS allows a withdrawal of up to $10,000 in IRA funds if used toward the purchase of your first home. If you're married, and both are first-time buyers, you each can withdraw $10,000 for a total of $20,000. According to the IRS, you can qualify as first-time home buyer if you, or your spouse, have not owned a principal residence during the previous two years. You can also use your IRA funds to pay the down payment for your children, grandchild or parent. You must report the withdrawal as income on your taxes. A Roth IRA also allows you to take out $10,000 to purchase a home. You must have the account for at least five years to avoid penalty.
Other Qualified Withdrawals
There are additional qualifying early IRA withdrawals. If you suffer from certain hardships, you can take a penalty-free distribution. Circumstances include unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income and payment of medical insurance premiums if unemployed. If you become permanently disabled, you can withdraw funds. After you die, assets are distributed to your beneficiary without penalty.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.