IRAs are a great way for anyone to save money for retirement. With the current state of the economy, many people may be tempted to withdraw early from their retirement accounts. What they may not know is that doing so could cost them a lot of money, leaving them in a worse spot than they were previously. This and other mistakes cost retirees millions every year, but they can be avoided, if you know your IRA laws, and if you have a strategy that will allow you to get the most out of those laws.
1. Make sure you are 59½ before withdrawing.
This affects those people who want to withdraw early from their retirement accounts. Know that withdrawing early is a bad idea, unless you need the funds to deal with some kind of emergency (some exceptions are available, including hardship withdrawals and an exception to withdraw up to $10,000 if you are a first-time homebuyer). Most people approaching retirement age know that they will be hit with a 10% penalty if they withdraw funds from their IRA before reaching age 59½. Although it is possible to avoid this penalty using the exceptions mentioned above, but it’s better to just wait a bit longer. You should also know that the IRS is very specific about the 59½ year cutoff, up to the day. So if you try to withdraw 181 days after your birthday, you will be in for a big surprise around tax time (in the form of that 10% penalty).