The short answer is unless you need the money immediately, you shouldn't withdraw from your IRA until you officially reach the age of retirement. For the IRS, the age of retirement is 59 1/2. At this point, you can withdraw funds from your IRA as you wish. Keep in mind that since Traditional and SEP IRAs are funded with pre-tax dollars, your qualified distributions will be taxed as ordinary income. If you withdraw from your IRA before 59 1/2, you'll incur a 10% early withdrawal penalty, unless you qualify for an exception (which includes education costs, medical expenses, 72(t) distributions or for a first-time home purchase).
Once you turn 70 1/2, you generally have to start withdrawing from your Traditional or SEP IRA. The required minimum distribution (RMD) is the minimum amount you must withdrawal each year from your IRA. This excludes Roth IRAs as you are not required to withdraw until after the death of the owner. Refer to the IRS website here for details on how to calculate the RMD and when you are required to make your first RMD.
You should withdraw from your Traditional or SEP IRA only if:
- Using for a first-time homebuyer purchase
- You're in retirement and need the funds for your lifestyle
- Pro tip: If you don't need the funds, you can postpone withdrawing from your Traditional or SEP IRA until the age of 70 1/2 when you will be required to take minimum distributions from your account.
- You're in a situation where you need additional income to sustain your lifestyle and your marginal tax bracket is low
- You need extra income in case of an emergency, but only if you're willing to pay the taxes associated with the withdrawal. Avoid this unless absolutely necessary!
Ultimately, when you withdraw from your Traditional or SEP IRA depends entirely on when you need the income. We highly encourage you to chat with an advisor if you are thinking of withdrawing from your IRA.