Money you pull out of a traditional IRA is taxed as ordinary income in the year you take it, and if you’re under 59½ you generally owe an extra 10% penalty on top. Once you reach age 73, the IRS stops leaving the timing up to you and requires an annual withdrawal. Those three ideas anchor the traditional IRA distribution rules, and most of the finer points are exceptions and mechanics built around them.
How the Withdrawal Is Taxed
Any amount you withdraw from a traditional IRA is included in your gross income for that year.1Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts It stacks on top of your wages, Social Security benefits, and other income, then gets taxed at whichever federal bracket that total lands in. For 2026, single filers pay 10% on the first $12,400 of taxable income, with rates climbing through six brackets to 37% on income above $640,600. Married couples filing jointly reach the 37% bracket at $768,700.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
This clean treatment assumes every dollar in the account came from deductible contributions. If you ever made nondeductible contributions, part of every distribution is a tax-free return of money you already paid tax on. You can’t pull out the nontaxable portion first. The IRS applies a pro-rata rule: each withdrawal is a proportional mix of taxable and nontaxable dollars based on your combined balance across all traditional IRAs. If your total balance is $100,000 and $20,000 came from nondeductible contributions, 20% of any distribution is tax-free and 80% is taxable. You track the nondeductible basis on Form 8606, which you file for any year you take a distribution with basis on record.3Internal Revenue Service. Instructions for Form 8606
The 10% Early Withdrawal Penalty
Take money out before turning 59½ and you owe a 10% additional tax on top of the regular income tax.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts On a $10,000 early withdrawal, that’s $1,000 in penalty before income tax even enters the picture. You report the penalty on Form 5329 with your return.
The tax code carves out a long list of exceptions. In every case below, the regular income tax still applies; only the 10% surcharge is waived.5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Health and Disability
Total and permanent disability, defined as being unable to engage in any substantial gainful activity due to a condition expected to result in death or last indefinitely, waives the penalty.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts A terminal illness exception applies when a physician certifies you’re expected to die within 84 months, and you can recontribute those funds within three years if your health improves.
Unreimbursed medical expenses above 7.5% of your adjusted gross income qualify, but only the portion above that floor. If you’ve been separated from a job and received unemployment compensation for 12 consecutive weeks, you can also use IRA funds to pay health insurance premiums penalty-free during that year or the following one.
Education and First Home Purchase
Qualified higher education expenses for you, your spouse, your children, or your grandchildren are penalty-free. That covers tuition, fees, books, supplies, and required equipment at eligible postsecondary schools.
First-time homebuyers can withdraw up to $10,000 penalty-free to buy, build, or rebuild a home. “First-time” means you haven’t had an ownership interest in a principal residence during the previous two years. The $10,000 is a lifetime cap per person, not annual, and has never been indexed for inflation.
Substantially Equal Periodic Payments
Sometimes called 72(t) payments or SEPP, this is the workhorse exception for people who need sustained early access. You commit to a series of roughly equal annual payments calculated from your life expectancy, and the 10% penalty is waived on every distribution in the series.6Internal Revenue Service. Substantially Equal Periodic Payments The trap is rigidity: once you start, you must continue for the longer of five years or until age 59½. Modify or stop early and the IRS retroactively applies the 10% penalty to every payment you took, plus interest.
SECURE 2.0 Additions
Two newer exceptions came online in 2024. You can take a penalty-free emergency personal expense distribution of up to $1,000 per year for unforeseeable or immediate financial needs, but you have to repay it before taking another.7Internal Revenue Service. Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t) Domestic abuse victims can withdraw up to $10,000 (adjusted for inflation) or 50% of their vested balance, whichever is less, within one year of the abuse.
Required Minimum Distributions
The tax deferral doesn’t run forever. Federal law forces you to start withdrawing at a set age, and the schedule was rewritten by the SECURE 2.0 Act.8Office of the Law Revision Counsel. 26 U.S. Code 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans If you were born between 1951 and 1959, RMDs begin at age 73. If you were born in 1960 or later, they begin at age 75, first hitting in 2033.
The annual amount is your prior December 31 balance divided by a life expectancy factor from the IRS Uniform Lifetime Table in Publication 590-B.9Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) A different table produces a smaller required amount if your sole beneficiary is a spouse more than 10 years younger. When you own multiple traditional IRAs, you calculate each separately but can take the total from any one account or split it across them.
The First-Year Timing Trap
You’re allowed to delay your very first RMD until April 1 of the year after you reach the applicable age. This sounds like a favor and often isn’t. Delaying pushes two RMDs into the same tax year: the delayed first one and the regular one due by December 31 of that same year.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Doubling up can bump you into a higher bracket, trigger Medicare premium surcharges, and make more of your Social Security taxable. Most people come out ahead taking the first distribution in the year they actually turn the RMD age.
Missing an RMD
If you fall short of your required amount by December 31, the IRS imposes a 25% excise tax on the shortfall. That drops to 10% if you correct it within two years. The penalty may be waived entirely if the shortfall resulted from a reasonable error and you’ve taken steps to fix it. To ask for the waiver, attach a letter of explanation to Form 5329.11Internal Revenue Service. Instructions for Form 5329
Qualified Charitable Distributions
Once you reach age 70½, you can send money directly from your traditional IRA to a qualified charity and exclude the amount from taxable income. Qualified charitable distributions count toward your RMD for the year, which makes them one of the most efficient ways to satisfy the requirement without inflating your tax bill.12Internal Revenue Service. Seniors Can Reduce Their Tax Burden by Donating to Charity Through Their IRA
For 2026 the per-person cap is $111,000, indexed annually for inflation, and a spouse filing jointly can make QCDs up to the same limit from their own IRA. Amounts above the cap are treated as ordinary taxable distributions. The transfer has to go directly from your IRA custodian to the charity; if the money passes through your hands first, it doesn’t qualify. Because the distribution never hits your adjusted gross income, a QCD can keep you below thresholds that trigger Medicare surcharges and higher Social Security taxation, which matters especially if you take the standard deduction and couldn’t otherwise deduct the gift.
Rollovers and Transfers Aren’t Distributions
Moving money between retirement accounts isn’t a taxable withdrawal, but only if you follow the rules. A direct trustee-to-trustee transfer, where your current custodian sends funds straight to the new one, has no withholding, no annual limit, and no chance of accidental taxation.13Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
An indirect (60-day) rollover is riskier. The custodian sends the money to you, and you have 60 days to redeposit the full amount into another IRA. Miss the window and the entire amount is a taxable distribution. Your original custodian is also required to withhold 10% for federal tax, so you’ll need to make up that withheld portion from other funds to roll over the full balance. On top of that, the IRS limits you to one indirect rollover across all your traditional, Roth, SEP, and SIMPLE IRAs in any 12-month period. A second one inside that window is treated as taxable. Direct transfers, Roth conversions, and rollovers between employer plans and IRAs are outside this limit.
Inherited IRA Rules
When the original owner dies, a different rulebook takes over. A surviving spouse has the most flexibility: you can roll the account into your own IRA and treat it as always yours, or keep it as an inherited IRA, which can help if you’re under 59½ and need penalty-free access.9Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
For deaths in 2020 or later, most non-spouse beneficiaries must empty the inherited IRA by December 31 of the year containing the 10th anniversary of the owner’s death.14Internal Revenue Service. Retirement Topics – Beneficiary Waiting until year 10 to withdraw everything at once can trigger a large single-year tax hit, so spreading distributions across the decade often works better.
Some beneficiaries can stretch distributions over their own life expectancy instead: minor children of the original owner (until they reach the age of majority, when the 10-year clock starts), disabled or chronically ill individuals, and beneficiaries no more than 10 years younger than the original owner. When the beneficiary isn’t an individual, such as an estate or a non-qualifying trust, different and generally less favorable rules apply.
State Income Taxes
Federal tax isn’t the whole story. Most states tax traditional IRA distributions as ordinary income, and rates range from zero in states with no income tax to over 13% in the highest. Some states exclude a portion of retirement income; the exclusion amounts and thresholds vary. Check your state’s rules before a large withdrawal, especially if you plan to relocate, because the state where you live when you take the distribution is generally the one that taxes it.
How to Actually Take a Distribution
Contact your IRA custodian through their online portal or by submitting a distribution request form. You’ll pick between direct deposit and a check, and most custodians process the request within a few business days.
Before the money moves, you’ll complete IRS Form W-4R to set federal income tax withholding. The default rate on nonperiodic IRA distributions is 10%, applied automatically if you don’t elect otherwise, and you can choose anything from 0% to 100%.15Internal Revenue Service. Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions If your marginal bracket is 22% or 24%, sticking with 10% withholding usually means writing a check at filing time. Matching withholding to your expected bracket avoids that. State withholding is separate.
By January 31 of the following year, your custodian sends Form 1099-R reporting the gross distribution, the taxable amount (when determinable), and any tax withheld.16Internal Revenue Service. Instructions for Forms 1099-R and 5498 If you have nondeductible basis, the 1099-R won’t reflect the tax-free portion; you calculate that on Form 8606 and report the corrected taxable amount on your return.