When you need cash, withdrawing money from your traditional IRA is a tempting solution. However, the tax results can be very unfavorable.
 
Your withdrawals are taxable. The federal tax rate could be as high as 35 percent.
  • You may owe state income taxes as well.

  • You permanently lose the tax-deferral advantage on money pulled out of your IRA.
  • If you are under age 59 1/2, you may owe a 10 percent federal penalty tax on top of the income taxes. This is adding insult to injury!
Fortunately, there are a several exceptions to the 10 percent penalty. One is to start taking annual payouts based on your life expectancy. This strategy avoids the 10 percent penalty, but you must stick with the program for at least five years or until you turn 59 1/2, whichever comes later.
 
Depending on your circumstances, you may be eligible for other exceptions to the 10 percent penalty.
 

Please contact us before taking money out of your IRA. We want to make sure you understand all the tax implications first. Also, we may be able to suggest other ways to obtain the cash at a lower tax cost.

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