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Are you thinking about withdrawing money from your IRA? Be aware there could be tax consequences. Find out more about what you should consider below.

IRA Withdrawals
The rules and tax implications for withdrawing money from IRAs vary depending upon the type of IRA and the age and/or circumstances of each individual. The information presented below is not intended to be a comprehensive discussion, but rather to provide you with general information about IRA withdrawal rules. If you require specific information concerning your individual financial situation, please consult with a financial planner or tax advisor. Dodge & Cox does not offer financial planning or tax advice.

Age 59½ and under
If you make a withdrawal from a traditional IRA prior to the age 59½, the withdrawal is considered to be an early withdrawal. Typically with a traditional IRA, the deductible contributions and earnings are treated as ordinary income in the year they are distributed. Unless an exception applies, an additional 10% penalty tax is imposed by the IRS. See the IRS website for a list of penalty exceptions for an early IRA withdrawal.

Over age 59½
There are no restrictions on withdrawals from your traditional IRA once you attain the age of 59½, however you are not required to begin withdrawals until you reach age 72. The deductible contributions and earnings are treated as ordinary income in the year they are distributed.

Age 72 and over
Once you reach the age of 72, you must begin to take annual Required Minimum Distributions ("RMDs"), or withdrawals, from your traditional IRA. Your first RMD must be taken by April 1 of the year following the year in which you turn 72. Every year after that, you will need to take out a minimum amount from your IRA based upon IRS determined amounts.

We can help you determine your RMD amount for assets invested in the Dodge & Cox Funds. We can also assist you with taking your RMD withdrawal or exchanging the amount into a regular taxable account if you would prefer to stay invested. Please note, the IRS imposes a 50% penalty on missed RMD amounts.

You may make withdrawals from your Roth IRA at any time. If the distribution is a "qualified distribution", it is tax free.

A qualified distribution from your Roth IRA must meet certain requirements:

  • The withdrawal must occur more than five years after the year for which you first made a contribution to your Roth IRA.
  • At least one of the following conditions must be satisfied:
    • You are age 59½ or older when you make the withdrawal.
    • The withdrawal is made to your beneficiary or estate after your death.
    • You are disabled (as defined in the tax code) when you make the withdrawal.
    • You are using the withdrawal to cover eligible “first-time homebuyer” expenses.

In contrast to a traditional IRA, there are no requirements on when you must start making withdrawals from your Roth IRA or on minimum required withdrawal amounts during your lifetime.

If the qualified withdrawal requirements are not met, the tax treatment of a withdrawal depends on the character of the amounts withdrawn, determined according to specified IRS ordering rules. These ordering rules are complex. See IRS Publication 590-B for more details on how to figure the taxes on a nonqualified withdrawal from your Roth IRA.

An inherited or beneficiary IRA is opened when an individual inherits an IRA or retirement plan account following the death of the original owner. If you are a beneficiary, it is important to understand the rules and requirements to avoid fees or penalties from the IRS.

The Setting Every Community Up for Retirement Enhancement Act of 2019 ("SECURE Act") redrew some the rules around inherited IRAs. Primarily, your options on what to do with the account you are inheriting depend on if the original account owner was your spouse or not.

Inheriting from a spouse
When you are inheriting an IRA or retirement plan account from a spouse, you have more options available to you. You can treat the account as your own, or rollover the assets into a IRA for yourself and the assets will be treated as if they were yours to begin with. Please note, depending on the age of the original owner, the way you structure the Inherited IRA could determine whether you need to begin taking distributions.

Inheriting from a non-spouse
When you inherit a retirement account from a non-spouse, you will need to establish an inherited IRA, unless you choose to disclaim the inheritance or take a lump sum distribution.

Generally, an account will need to be emptied within 10 years. There are exceptions to this rule if you are an "eligible designated beneficiary", in which case you may be able to stretch out the distributions over your lifetime.

The following are considered eligible designated beneficiaries:

  • You are the surviving spouse of the original account owner.
  • You are a minor child of the original account owner. Please note, generally once the minor child beneficiary reaches the age of majority the rules change and the account must be distributed within 10 years from that point.
  • You are disabled or chronically ill (as defined in the tax code).
  • You are any other individual not more than 10 years younger than the decedent.

We're here to help.

If you have questions, you can reach our service center at 800-621-3979 between the hours of 8:00 a.m. and 7:30 p.m. Eastern time, Monday - Friday.

For answers to commonly asked questions regarding IRAs, please review our IRA FAQs page.

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