Did you know you can take distributions from your IRA at anytime? There is a catch. If you take distributions before age 59½, you will be subject to a 10% IRS sanctioned, early withdrawal penalty as well as the income tax.

However, the 10% penalty is waived if income is needed for disability, death, a need to pay medical expenses, for heath insurance premiums or due payment, higher education expenses, first time home purchases or to take a stream of Substantially Equal Periodic Payments.

The distributions of non-deductible contributions to an IRA will not be income taxed or penalized. For example: Roth contributions (which are not deductible) are not taxed or penalized when withdrawn. The only exception is that Roth conversions (again, not tax deductible) may be penalized if withdrawn within 5 years.

Unless you have the rare non-deductible contributions in traditional IRAs, you can expect that the full amount of any distribution will be income taxed and, if clients are under age 59½, subject to the 10% penalty.

So, what are your options? Substantially Equal Periodic Payments (SEPPs). These are an exeption to the 10% IRS and pre-59½ withdrawal penalties. You can choose three IRS approved methods to calculate an income stream. Even though the payments are calculated based on life expectancy, you can modify or stop payments after five years and after reaching age 59½. You have the option to distribute the SEPP automatically and report to the IRS that this is an exception to the 10% penalty.

To get this rolling talk to your certified tax planner.