The Internal Revenue Service allows workers to tap their IRAs before the normal distribution age of 59½ — if it’s done correctly. There is a provision for early distributions which does not carry the 10% early withdrawal penalty. The early withdrawals from the IRA account need to be equal payments over a minimum period of 5 years.
But, if you modify those regular payments, you’ll lose the exception and trigger the 10 percent “early distribution recapture tax.”
So, view that account only as an outgoing one. For example, you’ll want to be careful NOT to roll over money from your workplace 401(k) or 403(b) plan — or from one of your other IRAs — into it. The IRS will look at that as a change in the payment schedule and you’ll wind up owing the penalty!
Early distributions from IRAs are complex for other reasons, too. Contact us to find your way through the taxing details.