At age 72, you must withdraw money from all types of IRAs, except for a Roth one, whether you need it or not, and pay income taxes. Your Roth IRA withdrawals are tax-free as long as you're 59 and a half or older and your account is at least five years old. Withdrawals from traditional IRA accounts are taxed as regular income, depending on the tax bracket of the year in which you make the withdrawal. The purposes that are eligible to withdraw early from a traditional IRA include buying a home for the first time, qualifying higher education expenses, significant medical expenses that qualify, certain long-term unemployment expenses, or if you have a permanent disability.
In general, Roth IRAs offer more flexibility because you can withdraw your contributions at any time, eligible withdrawals are tax-exempt and are not subject to RMD for the life of the account owner. If all of your IRA contributions were tax-deductible when you made them, the full amount of the RMD will be considered ordinary income for the year you receive it. IRA withdrawal rules depend on the type of IRA, your age, and how long it's been since you first contributed to an IRA. Early withdrawals, those made before age 59 and a half from any qualifying retirement account, including IRAs and 401 (k) plans, carry a 10% penalty.
RMDs only apply to traditional IRAs; there are no RMDs for Roth IRAs for the life of the account owner. Retirement plan participants and IRA account owners, including owners of IRA SEP and IRA SIMPLE, are responsible for withdrawing the correct amount of RMD on time each year from their accounts, and face severe penalties for not accepting RMDs. There is an exception for the surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, or a person no more than ten years younger than the employee or owner of the IRA account. In general, QCDs should be reduced by deductible IRA contributions made for the year you turn 70 and a half years old or later.
However, RMDs for qualified retirement plans or inherited IRAs must also be calculated separately and can only be deducted from their respective accounts. You can withdraw your earnings without penalties or taxes as long as you are 59 and a half years old or older and have had a Roth IRA for at least five years. When specific advice is needed or appropriate, Schwab recommends that you consult with a qualified tax advisor, certified public accountant, financial planner or investment manager. If you earn too much to contribute directly to a Roth, you may be able to make contributions indirectly through a strategy known as a clandestine Roth IRA.
You must calculate your RMD for each IRA separately, but you have the flexibility to deduct your full RMD amount from a single IRA or from a combination of IRAs. You must calculate the RMD separately for each IRA you own, but you can withdraw the full amount from one or more IRAs. To withdraw your earnings, you must wait until you are 59 and a half years old or older and at least five years have passed since you first contributed to a Roth IRA to avoid taxes and penalties.