Originally Posted by hoangtu69
I'm not 59 1/2 years old and I want to withdraw $$ early from my IRA. I read that if I withdraw an equal amount every month for at least 5 years or until I reach 59 1/2, whichever is longer, then I don't have to pay the 10% penalty.
Of coz the $$ is still taxable but at least I'll avoid the 10% penalty. Is that correct?
The IRS does have exceptions allowing early distributions without the 10 percent penalty. Two types of IRA structures exist: traditional and Roth. Both R-IRAs and IRAs have an age threshold for normal distributions, 59 1/2 years, with anything taken out early being penalized. The Roth has a second condition, requiring the account to have been funded for at least five years, regardless of IRA owner age. Failure to meet these requirement results in an early distribution that is penalized unless an exception applies.
NOTE; BUT, as long as you plan to use your individual retirement account to provide a portion of your retirement income, the option to annuitize all or a portion of your IRA is one way to convert the IRA's value in the account to monthly income.Annuities are bought to provide income streams, whether now or later. Electing the income stream is called annuitization. You can annuitize anytime, at any age without penalty. The exemption applies as long as the IRA owner takes regular periodic payments at least once per year based on life expectancy tables according to IRA Regulation 72(t). Payment amounts must be equal and continue for a minimum of five years or until the owner is 59 1/2. To annuitize an IRA, you will use the accumulated value or a part of the value to buy an immediate annuity from a life insurance company. In return, the insurance company will pay you a monthly payment for as long as you live. One option with an annuity is to add a spouse as a joint lfe or co-annuitant, and the payments will last until the second person dies. When you die or the second person dies in the case of a joint life annuity ,the annuity payments stop and there is no remaining value from the IRA money you used to buy the annuity. So, you can choose to annuitize your IRA at any age and avoid the 10 percent IRA early withdrawal penalty.You can receive distributions from your traditional IRA that are part of a series of substantially equal payments over your life or your life expectancy, or over the lives or the joint life expectancies of you and your beneficiary, without having to pay the 10 percent additional tax, even if you receive such distributions before you are age 59½.There are two other IRS-approved distribution methods that you can use to avoid an IRA early withdrawal penalty. They are generally referred to as the fixed amortization method and the fixed annuitization method. Both methods are quite complex and generally require professional assistance.As your bank pointed out, you would have to continue to use the method for at least five years. If you switch, you could be liable for additional recapture tax on your pre-age 59½ distributions.