Traditional IRA Distribution Rules

• If you have a traditional IRA, you can start taking penalty-free distributions if you are 59 1/2, if you become disabled according to the IRS code's definition, and if your descendants qualify to receive the money penalty-free if you die. Once you reach the age of 70 1/2, you are required to begin taking distributions.
  
  

Traditional IRA Exceptions

• There are several exceptions to traditional IRA rules that allow you to withdrawal money before you are 59 1/2 without penalty. You may take distributions penalty-free if you need to pay for medical expenses that exceed 7.5 percent of your income; to pay for certain education expenses for you or someone in your immediate family; if you're out of work for more than three months and need to pay for health insurance; and if you are buying a home for the first time.
  
  

Roth IRA Withdrawal Rules

• Roth IRAs allow you to take tax-free distributions, provided that the money sits in the bank for at least five tax years. As with a traditional IRA, you may begin withdrawing money penalty-free when you are 59 1/2, or if you die or become disabled. Unlike with a traditional IRA, you are under no obligation to take distributions in your lifetime.
  
  

Roth IRA Distributions Within Five Years

• If you can't wait five years to take distributions from your Roth IRA, the IRS requires that you withdraw funds in a certain order. First, you take the contributions you made to the account; this money is tax- and penalty-free. Next, you take any funds you transferred from a Traditional IRA account--the first funds you deposited are the first you'll withdrawal. This money is tax-free but subject to the IRS's 10 percent penalty. Finally, any earnings withdrawn within five years are subject to both taxes and penalties.
  
  

Roth IRA Exceptions

• If you wait five years, you can avoid penalties if you withdraw Roth IRA funds for qualifying purposes. But you will still have to pay taxes on your earnings. Education expenses for you and your family, medical bills that exceed 7.5 percent of your earnings and health insurance for you and your family are all qualifying expenses.