First, the Government’s Policies
The IRS doesn’t want you taking money out of an IRA before age 59½. If you do, you will be assessed a 10% penalty. On top of that, withdrawals from a Traditional, SEP, or SIMPLE account will also be taxed. Making a withdrawal from a SIMPLE IRA in less than 2 years after it was opened increases the penalty from 10% to 25%.
The government does grant a few exceptions for persons under 59½. Withdrawals made due to disability or to pay health insurance premiums while unemployed will not incur the 10% penalty. Also permissible are withdrawals to fund higher education expenses or to make a first-time home purchase.
Uncle Sam also allows IRA account holders to withdrawal retirement assets for medical expenses if those costs exceed 10% of their adjusted gross income. Persons 65 years old or older receive penalty-free withdrawals if their medical expenses are greater than 7.5% of AGI.
Once you reach age 70½, IRA policies require you to start taking withdrawals. Called required minimum distributions (RMD’s), these apply to Traditional, SEP, and SIMPLE plans. A Roth account does not have an RMD.
The first RMD must be made by April 1st of the year after you turn 70½, and all withdrawals thereafter are due by end of a year. Not taking a withdrawal on time results in a 50% penalty on the amount that should have been taken. An RMD can be taken in cash or securities, or made as a donation to charity.
The IRS has a worksheet on its website to figure the minimum amount that must be taken out each year. E*Trade, Fidelity, and Charles Schwab have convenient calculators that can quickly figure the amount with less effort.
Free Charles Schwab IRA
Get $0 commissions + satisfaction guarantee at Charles Schwab.
Open Schwab Account
How to Withdraw Money from an IRA at Charles Schwab
Before you can make a withdrawal from an IRA at Schwab, you first must fill out the appropriate form. The broker has two forms, one for distributions before age 70½, and the other for RMD’s. The forms can be filled out electronically, or you can fill out a pdf document and mail it to the broker.
The application for withdrawal can be made for a one-time or recurring distribution. For the periodic option, the broker accepts weekly, semi-monthly, monthly, last business day of the month, every two months, quarterly, semi-annually, or annually.
At Schwab, distributions can be made in cash or securities. For the latter option, investments are moved to a taxable account or to a Roth IRA, which does not have required distributions.
Income paid by securities can also be regularly distributed. The broker allows dividends or interest or both to be withdrawn as they are accrued or on the last business day of the month. And of course, you can select a lump sum distribution.
Withdrawals of all types can be mailed to your home address, transferred to a Schwab Bank account, or sent to a third party. Funds can also be wired.
To find the necessary form on Schwab’s website, go to ‘Service’ at the top of the menu, then select ‘Account Servicing.’ Next, in the left-hand column choose ‘Personal Retirement.’ A list of choices will then be shown. Withdrawal requests for Roth, Traditional, SEP, and SIMPLE accounts can be made here. Forms that are only available in pdf format will be shown with the Adobe Reader icon.
Free Charles Schwab IRA
Get $0 commissions + satisfaction guarantee at Charles Schwab.
Open Schwab Account
|