Whether you’ve just made it to retirement or you are drawing up your long-term goals, eventually, you will be able to take distributions from your self-directed IRA.

After years of saving, you may be eager to start reaping the benefits; on the other hand, you may want your assets to continue to grow beyond retirement.

When it comes to taking distributions, the process can be a little tricky. If you are curious how distributions will work during your golden years, here are the top nine frequently asked questions about withdrawing from your self-directed IRA.

1.  When Can You Start Taking Distributions?

In order to start taking funds from your self-directed IRA, you must be at least 59 ½ years of age. While you are not forced to start withdrawing at this time, it is the earliest date you can do so without any issues.

In the case of Roth IRAs, you need to have the account open for at least five years.  If you do take early distributions, each withdrawal will incur a 10% penalty. On top of that, if you have a traditional IRA, you will also need to pay the income taxes that you’ve deferred.

2. Are There Any Exceptions To The Rule?

There are exceptions to the early withdrawal rule, but they follow specific circumstances. Regardless if you have a traditional self-directed IRA or a Roth IRA, you can avoid the withdrawal penalty in the following situations:

  • You have become disabled.
  • You have medical expenses that are greater than 10 percent of your adjusted gross income.
  • You want to use the money for qualified education expenses.
  • You are converting your traditional IRA to a Roth IRA.
  • You are planning to purchase your first house with the funds.

If you die, the balance of your SDIRA account is paid to your beneficiary without penalty.

Should you fall under these specific circumstances, you can take early distributions without penalty if you follow the proper procedure.



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3. When I Reach Retirement Age, Am I Required To Take Distributions?

This depends on the type of IRA you have. If you have a traditional SDIRA, you are required to take required minimum distributions (RMD), though not when you reach 59 ½ years old. Once you are over 70 ½, you are required to take mandatory distributions from your tax-deferred account. Additionally, you must take distributions from a non-spousal inherited IRA.

4. Are There Any Advantages To Having A Roth IRA?

Yes! The biggest advantage is that Roth IRA owners do not need to take required minimum distributions. Additionally, Roth IRA owners aren’t penalized for taking distributions early. The taxes have already been taken out. Roth earnings grow, tax-deferred and are distributed tax-free once you reach retirement.

5. What Is RMD?

RMD stands for required minimum distributions. For traditional IRA owners, this is a step that makes it mandatory to take distributions from their retirement funds. By April 1st of the year, after you turn 70 ½, you must take withdrawals if you have a traditional IRA. There are steep penalties for not taking the correct amount: up to 50 percent excise tax.

6. How Do I Take Distributions From My IRA?

When you reach retirement age, you can’t just take your distributions. You need to make a request to your IRA custodian. After you put in the request, the custodian issues the funds, completes the necessary paperwork, and processes the request with the IRS. Also, if you wish, the custodian will withhold state and federal taxes from the distributions.

7. Does It Cost Anything To Take Distributions?

Yes, IRA owners must pay a fee to their custodian after every withdrawal. Fees range depending on the custodian and how the funds are transferred. It’s important to carefully plan your withdrawals, as taking too many can be costly.

8. Is There A Way To Calculate RMD?

There are two different ways you can calculate RMD, and both are dependent on your beneficiary. If your spouse is your beneficiary, and they are more than ten years younger than you, that will affect how RMD is calculated. Remember with, either way, it will be the minimum required; you can always take more.

9. What Are The Two Ways To Calculate RMD?

There are essentially two tables you can follow: The Joint Life and Last Survivor Table and the Uniform Lifetime Table. When the beneficiary of the self-directed IRA is a spouse more than ten years younger than the owner, they can follow the Joint Life and Last Survivor Table. The funds in your IRA can stretch further over a longer period of time.

If your beneficiary does not fit this requirement, your RMD will follow the Uniform Lifetime Table. Both these tables calculate the minimum amount you need to take to avoid penalties. It is possible to take more or hit your RMD by taking from numerous IRAs. However, you must take the right amount.

Preparing For Retirement

As you reach your golden years, there’s no reason to worry about taking your distributions. Perform your due diligence beforehand to avoid any possible mishaps and you can reap the benefits of your retirement savings.

Be sure to consult a trusted Horizon Trust financial advisor if you are concerned about RMD or if you are considering a Roth IRA. Prepare for your retirement now so you can enjoy your nest egg in the future.