When Can I Access My Retirement Accounts?

by | Sep 9, 2019

Q: When Can I Access My Retirement Accounts?

Retirement accounts offer attractive tax benefits that make them a key part to long-term financial planning. However, with those benefits, there are also certain limitations and restrictions to investing in a retirement account. One of the primary limitations is that the money you save into retirement accounts is not typically accessible until you reach an age closer to retirement. Taking withdrawals before the allowed age, 59 ½ in many cases, can trigger an early withdrawal penalty of 10%.

Different types of retirement accounts have different rules, and it’s important to know what those rules are and if there are exceptions allowed.


Traditional IRAs

One of the most common retirement account types is a Traditional IRA. Contributions made to a Traditional IRA are typically made on a before-tax basis, although non-deductible/after-tax contributions are also allowed. Earnings in a Traditional IRA grow tax deferred, and distributions are taxed at ordinary income tax rates.

Traditional IRA owners must wait until age 59 ½ to take normal distributions and avoid early withdrawal penalties. Starting at age 70 ½, whether distributions are needed or not, the IRS requires IRA owners to take taxable distributions from their IRAs. These are called Required Minimum Distributions. The IRS also determines how much you must distribute at this time using a life expectancy table published in their Publication 590. (see www.irs.gov for details)

If you need to access the funds in your IRA prior to age 59 ½, there are a few exceptions that would allow you to do so, including if you are disabled, need to pay for qualified higher education expenses, plan to purchase a home for the first time (up to $10,000), have unreimbursed medical expenses (anything over 10% of AGI if under age 65), if you agree to have distributions paid out in equal and substantial periodic payments, and more.

There are multiple formulas for equal and substantial periodic payments that you can choose from to determine how much you would be able to withdraw. Also, these payments are required to be made until you are 59 ½ or for a minimum of 5 years, whichever happens last.

The IRS lists all of the allowable exceptions on their website at https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions.


Roth IRAs

While the rules for Roth IRAs are similar to Traditional IRAs, there are some key differences. First, Roth IRA contributions are made on an after-tax basis. However, earnings still grow tax deferred. If distributions are considered qualified, they are taken out tax-free.

For a distribution to be considered qualified, a few conditions must be met. First, the distribution must be made more than 5 years after the first taxable year that a contribution was made to the Roth IRA (known as the 5-year rule). The distribution must also be made either after age 59 ½, due to disability, death, or must meet the requirements for the first home purchase exception. A full list of exceptions are also on the IRS website at https://www.irs.gov/publications/p590b#en_US_2018_publink1000231059.  

The main difference and advantage of Roth IRAs is that contributions, not earnings, can be withdrawn at any time and for any reason. Since contributions have already been taxed, there is no income tax or early withdrawal penalty applied. It is only the earnings that could be subject to an early withdrawal penalty of 10% in a Roth IRA.


Qualified Plans (401(k), 403(b), etc.)

Qualified plans could be Traditional (pre-tax) or Roth (after-tax). Many employer-sponsored plans allow for both types of contributions. The distribution rules for qualified plans are also very similar to what’s already been mentioned, but with a few minor changes.

While the age requirement of 59 ½ still applies to qualified plans, there is an exception made for those that are separated from service during or after the year the employee turns 55 (or 50 for public safety employees of a state, or political subdivision of a state, or in a governmental defined benefit plan).

For example, if John retires at age 56, for example, he would be eligible to take a penalty-free distribution (cash withdrawal or rollover) from his qualified retirement plan. This can become a key factor for those retiring prior to age 59 ½, as this exception does not apply for IRAs.

Another difference between qualified plans and IRAs is that there are no exceptions for early withdrawals from a qualified plan for the purpose of paying for qualified higher education expenses, buying your first home, or paying for health insurance premiums while unemployed.


Other Ways to Access Your Money

If none of the early withdrawal exceptions apply to you but you still need to access funds in your retirement accounts, there are a few other options to consider. One alternative would be to take a loan from your 401(k) plan, if your plan allows. This option takes careful research and planning as there are several things to consider in implementing a 401(k) loan.

Another option could be to do a 60-day rollover. In the event that you need money in the short-term, you can use the 60-day rollover rule to withdraw money from an IRA or qualified plan without tax or penalties, as long as you deposit an equal amount back into an IRA or qualified plan within 60 days. This essentially becomes a tax-free, penalty-free short-term loan from your retirement account.

When executing a 60-day rollover from a qualified plan, however, beware of the mandatory 20% withholding for federal tax. This doesn’t mean you will be taxed, but just means that on a $10,000 distribution, you will only receive $8,000. When you file your taxes, if you’ve over-withheld by $2,000, then you’ll receive a refund at that time.



A common misperception is that you must be age 59 ½ or older to access money from retirement accounts without penalties. While this is partially true, there are many other ways to access retirement funds prior to age 59 ½ while avoiding the 10% early withdrawal penalty. But, these strategies take careful planning and a solid understanding of IRA rules and the current tax code. Before acting on any of the strategies mentioned above, be sure to consult with a qualified tax or investment professional.

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