How IRA withdrawals work and what happens to your money

An IRA withdrawal moves money from your retirement account to your bank account or another destination you choose. The mechanics depend on the type of IRA you hold and your age. If you are under 59½, most withdrawals trigger a 10% early withdrawal penalty on top of income tax. If you are 59½ or older, you can withdraw without penalty, though you still owe income tax on traditional IRA money (Roth IRAs have different rules). The financial institution holding your IRA — a bank, brokerage, or credit union — processes the withdrawal, usually within three to five business days.

The money does not go directly to the IRS or anywhere else first. It goes to you. Taxes are your responsibility to pay when you file your return, unless you ask the IRA custodian to withhold a percentage upfront. Many people do not withhold, then face a tax bill later. The withdrawal itself is straightforward; the tax consequences are where most people stumble.

Key Takeaways

  • Withdrawals from a traditional IRA before age 59½ cost you 10% of the amount withdrawn as a penalty, plus income tax on the full withdrawal.
  • Roth IRA withdrawals of contributions (money you put in) are tax-free and penalty-free at any age; earnings withdrawals before 59½ trigger the 10% penalty and income tax.
  • You can request the IRA custodian withhold taxes from your withdrawal, or you can pay the tax bill when you file your return.
  • Some withdrawals — medical expenses, first-time home purchase, disability — may avoid the 10% penalty even before 59½, though income tax still applies.
  • Required Minimum Distributions (RMDs) begin at age 73 for most people and must be withdrawn each year or you face a 25% penalty on the amount not withdrawn.

Traditional IRA withdrawals and the tax hit

A traditional IRA withdrawal is taxed as ordinary income in the year you withdraw. If you withdraw $10,000 from a traditional IRA and you are in the 22% federal tax bracket, you owe roughly $2,200 in federal income tax on that withdrawal. State income tax may apply too, depending on where you live. If you are under 59½, add another 10% penalty — $1,000 in this example — unless an exception applies.

The IRA custodian does not automatically send money to the IRS. They send it to you. You are responsible for paying the tax when you file your return, or you can ask them to withhold a percentage upfront. If you ask for withholding, they will reduce the amount deposited to your bank account. For example, if you withdraw $10,000 and request 20% withholding, you receive $8,000 and the custodian sends $2,000 to the IRS as a tax payment on your behalf. That withholding counts toward your total tax bill for the year.

The penalty applies to the full withdrawal amount, not just the taxable portion. If you withdraw $10,000 before 59½ and no exception applies, you pay a $1,000 penalty plus income tax on the $10,000. The penalty is separate from the tax.

Roth IRA withdrawals: contributions versus earnings

Roth IRAs have a crucial advantage: you can withdraw your contributions (the money you deposited) at any time, at any age, with no tax and no penalty. If you put $50,000 into a Roth IRA over several years and it grew to $70,000, you can withdraw the $50,000 contribution whenever you want. The $20,000 in earnings stays in the account unless you meet withdrawal conditions.

Earnings — the investment gains — are different. If you withdraw earnings before age 59½ and your Roth IRA has not been open for at least five tax years, you owe income tax on the earnings plus a 10% penalty. The five-year rule is strict: it applies to each Roth IRA separately, and the clock starts on January 1 of the year you made your first contribution to any Roth IRA. If you opened a Roth in 2020, you cannot withdraw earnings penalty-free until 2025, even if you are 59½.

The IRA custodian tracks contributions separately from earnings. When you request a withdrawal, ask them which portion is coming out — contributions first, or a mix. Most custodians default to a pro-rata calculation that treats each dollar withdrawn as a blend of contributions and earnings, which can trigger tax on earnings you did not intend to withdraw. Specify that you want contributions withdrawn first if that is your goal.

Exceptions to the 10% early withdrawal penalty

The IRS allows penalty-free withdrawals before 59½ in specific situations. Income tax still applies to traditional IRA withdrawals in these cases, but the 10% penalty does not. For Roth IRAs, the rules are narrower: exceptions apply only to earnings, not contributions (which are always penalty-free).

Common exceptions include: disability (you must be unable to work due to a physical or mental condition); medical expenses exceeding 7.5% of your adjusted gross income; health insurance premiums while unemployed; a first-time home purchase (up to $10,000 lifetime); and substantially equal periodic payments (SEPP), a complex calculation that requires you to withdraw a fixed amount each year for at least five years or until 59½, whichever is longer. There is also an exception for withdrawals due to an IRS levy, and for certain military reservists called to active duty.

The burden is on you to document the exception. The IRA custodian does not verify it; they process the withdrawal and you report it on your tax return. If the IRS audits and finds you did not meet the exception, you owe the 10% penalty plus interest and possibly penalties for underpayment of tax.

Required Minimum Distributions and the withdrawal deadline

Once you reach age 73, the IRS requires you to withdraw a minimum amount from your traditional IRA each year. This is called a Required Minimum Distribution, or RMD. The amount is calculated by dividing your IRA balance on December 31 of the prior year by a life expectancy factor published by the IRS. For most people, the first RMD is due by April 1 of the year after you turn 73. After that, RMDs are due by December 31 each year.

If you do not withdraw the full RMD amount by the deadline, the IRS charges a 25% penalty on the shortfall. If your RMD is $5,000 and you withdraw only $3,000, you owe a $500 penalty (25% of $2,000). This penalty is separate from income tax. The penalty was reduced from 50% in 2023, but 25% is still steep.

Roth IRAs do not require RMDs during the account holder's lifetime. If you inherit a Roth IRA, different rules apply. If you inherit a traditional IRA, you must take RMDs based on your own life expectancy, even if the original owner had not yet reached 73.

How to request a withdrawal from your IRA custodian

Contact your IRA custodian — the bank, brokerage, or credit union holding your account — and ask for a withdrawal form or request. Most custodians offer online withdrawal requests through their website or app. Some require a phone call or a paper form signed and mailed back. The process typically takes three to five business days from the time the custodian receives a complete request.

You will need to specify the amount, the destination (your bank account, a check mailed to you, or a transfer to another IRA), and whether you want taxes withheld. If you want withholding, the custodian will ask what percentage — usually 10%, 20%, or 25%. If you do not request withholding, no taxes are taken out and you owe the full tax bill when you file your return.

If you are rolling over the withdrawal to another IRA or retirement plan, tell the custodian. A rollover is not a taxable withdrawal; it is a transfer. The rules are strict: you have 60 days to deposit the money into the new account, or it becomes a taxable withdrawal. Many custodians can do a direct transfer (custodian to custodian) instead, which bypasses the 60-day window and is safer.

What happens if you miss a withdrawal deadline or withdraw too much

If you miss an RMD deadline, contact your IRA custodian and the IRS immediately. You can request a waiver of the 25% penalty if you have a reasonable cause — for example, you did not understand the rule, or the custodian failed to notify you. The IRS is not always lenient, but some taxpayers do receive waivers. File Form 5329 with your tax return and explain the miss.

If you withdraw more than your RMD in a given year, the excess counts toward next year's RMD. You do not owe a penalty for over-withdrawing. However, you still owe income tax on the full amount withdrawn.

If you withdraw from an IRA and then realize you made a mistake — you needed the money for something else, or you withdrew too much — you can undo the withdrawal within 60 days by rolling it back into the same IRA. This is called a return of funds or a reversal. The custodian must receive the money within 60 days of the withdrawal. If you miss the 60-day window, the withdrawal is final and taxable.

Frequently Asked Questions

Can I withdraw from my IRA without paying taxes?

Roth IRA contributions can be withdrawn tax-free and penalty-free at any age. Traditional IRA withdrawals are always taxed as ordinary income. If you are 59½ or older, you avoid the 10% penalty but still owe income tax on traditional IRA money. Some exceptions allow penalty-free withdrawals before 59½, but income tax still applies.

What is the difference between a withdrawal and a rollover?

A withdrawal is a taxable distribution of money from your IRA to you. A rollover is a transfer of money from one IRA (or retirement plan) to another IRA, which is not taxed if done correctly within 60 days. A direct transfer between custodians is the safest rollover method because the 60-day clock does not start.

Do I have to pay taxes on my IRA withdrawal right away?

No. You pay taxes when you file your annual tax return. If you do not request withholding from the custodian, the full withdrawal amount goes to you and you owe the tax bill later. If you request withholding, the custodian sends a portion to the IRS and you receive the rest. Either way, the tax is due when you file your return.

What happens if I withdraw from my IRA before I turn 59½?

You owe a 10% penalty on the withdrawal amount plus income tax, unless an exception applies. Exceptions include disability, medical expenses over 7.5% of income, first-time home purchase (up to $10,000), and substantially equal periodic payments. Roth IRA contributions are always penalty-free; only earnings trigger the penalty.

Can I put money back into my IRA after I withdraw it?

You can reverse a withdrawal within 60 days by rolling it back into the same IRA. After 60 days, the withdrawal is final. You can also make new contributions to your IRA in future years, subject to annual contribution limits and income restrictions for Roth IRAs.