7 key IRA withdrawal dates for taxpayers: How to take distributions without penalty

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Published on April 09, 2024 | 5 min read

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An IRA offers useful benefits when it comes to saving for retirement – especially the ability to save on a tax-advantaged basis – if you stick to the rules. And one of the biggest rules is when you need to take withdrawals from your IRA. Those with an IRA have a variety of key dates to keep in mind when it comes to dodging avoidable taxes on their retirement savings.

7 key IRA withdrawal dates to avoid penalties

To avoid any unnecessary penalties on your IRA nest egg, you’ll want to pay close attention to the following key withdrawal dates.

1. The age to avoid early withdrawal penalties

The standard age to avoid penalties for an early withdrawal from either a traditional IRA or Roth IRA is age 59½. When you reach that age you can take distributions from a traditional IRA without incurring a penalty, though you’ll be taxed at ordinary income rates on the full withdrawal.

Things are a bit different with Roth IRAs, though. You can take out contributions at any age tax-free, but earnings on those contributions can come out tax-free at age 59½ if the Roth IRA has been open for at least five years – part of a few five-year rules for Roth IRAs (more below).

2. The age you must take withdrawals

If you have a traditional IRA, you’ll have to begin taking required minimum distributions (RMDs) for the year you turn 73, part of recent changes to retirement rules created by the SECURE Act 2.0.

Roth IRAs are not subject to required distributions and can be held by the original owner indefinitely without taking a distribution – another reason why experts prefer the Roth IRA.

The best brokers for IRAs can help you figure your RMD and help you avoid needless penalties.

3. The annual deadline for your first required IRA withdrawal

For a traditional IRA, you’ll need to take out your first RMD by April 1 of the year following the year you turn 73. For example, if you turn 73 in 2024, you’ll need to make that RMD by April 1, 2025.

If you don’t hit your RMD for the year, the IRS can take a hefty 25 percent of the amount that you should have taken but didn’t. Keep this money in your pocket by taking your RMD on time.

4. The annual deadline for all other traditional IRA minimum withdrawals

While the deadline for taking your first RMD for a traditional IRA is April 1 of the year after you turn 73, all other RMDs must be taken by December 31 based on the ending balance of the year before. For example, an RMD for year 2024 is based on the IRA balance at year-end 2023.

“With a busy holiday season, it is easy for most to miss the December 31 deadline,” says John Jones, investment advisor representative at Heritage Financial in Newberry, Florida.

You can calculate your RMD using the IRA minimum distribution tables.

So, while it may sound nice to avoid taking your first RMD until the next calendar year, you’ll then be forced to take two RMDs in the same year – one by April 1 and the other by December 31. And that may mean you end up paying more taxes than you otherwise would need to.

5. The time limit on rollovers

You can roll over a 401(k) employer-sponsored retirement plan to an IRA or otherwise transfer an IRA, and you typically have 60 days to get it from one account to another. It’s what’s called the 60-day rollover rule, and it means you have to get your money into your new account pronto.

“Most fail to consider the opportunity of a 60-day indirect rollover, which can allow some to distribute funds from their IRA and then deposit back within 60 days to avoid in cases taxes and penalties,” says Jones.

So those who are a bit strapped for cash may use it as a chance to keep a bit of that money for an immediate need and then replace it in the new account within the 60 days. But don’t fool yourself into thinking you’ll pay yourself back when you have no intention of doing so. If you don’t get that money into the new account, you can be hit with serious income taxes and penalties.

6. The time limit on periodic payments

Savers have a loophole to take an IRA distribution before age 59½ without a penalty – using a series of substantially equal periodic payments (SoSEPP). According to the IRS, the payments must be “substantially equal” and must be based on the life expectancy of the beneficiary.

But the plan has some other significant requirements, says Jones.

“The taxpayer must not modify the SoSEPP until the later of the fifth anniversary of the date of the SoSEPP and the date the taxpayer reaches age 59 ½,” he says. “One must pay careful attention to ensure the proper distributions are met each year or risk interest and penalties on all prior distributions.”

So you’re on the hook to use the plan for at least five years or suffer significant penalties. And this plan doesn’t get you out of any taxes that you might otherwise owe on the distribution, either.

7. 5-year withdrawal rules on Roth IRAs

Roth IRAs have important 5-year rules that you’ll need to abide by in order to avoid significant penalties. The Roth IRA five-year rule says you can only withdraw earnings tax-free from your Roth IRA once it’s been at least five years since the tax year you first contributed to a Roth IRA. The rule applies to everyone regardless of age, even those 59½ and older.

The simple workaround is to open a Roth IRA now, deposit $1 and then wait. Plus, regardless of when during the year you actually make that contribution, the clock starts ticking on January 1 of that year. Even if you contributed on December 31, it counts as a full year toward the rule.

Roth IRA conversions have their own, different five-year rule to determine whether the conversion principal will avoid penalties.

If you’re considering a Roth IRA, check out the best brokers for Roth IRAs.

Avoid these IRA taxes and penalties

Are these rules complex? Definitely. But understanding the fundamentals can help you steer clear of the most likely scenarios to hit you with penalties and taxes.

It’s critical to avoid unnecessary taxes and penalties in order to give your contributions time to compound and really build up a sizable nest egg for retirement. Even relatively small penalties or taking early withdrawals can really hurt your retirement fund over time.

If you need someone to navigate you through the world of IRAs, consider working with an expert advisor. Bankrate offers a financial advisor matching tool to find you with an advisor in minutes.

Bottom line

Through some simple preparation and conscientiousness, you can avoid needless taxes and penalties on your IRA, ensuring that you take full advantage of your retirement account. Staying informed about changes to IRA withdrawal rules can help ensure that your money stays yours.

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