IRS Publication 590-B: Distributions from IRAs
Taking money out of your IRA is not as simple as writing yourself a check. Publication 590-B governs every type of IRA distribution — from Required Minimum Distributions and early withdrawal penalties to Roth qualification rules and inherited IRA requirements. One mistake can cost you thousands in unnecessary taxes and penalties.
Traditional IRA Distributions — How They Are Taxed
Ordinary Income Taxation
Distributions from a traditional IRA are taxed as ordinary income in the year received. The tax rate depends on your marginal tax bracket — which can be as high as 37% federally plus state tax. Strategic withdrawal planning can significantly reduce your total tax burden.
Nondeductible Contributions & the Pro-Rata Rule
If you made nondeductible contributions to your traditional IRA, a portion of each distribution is tax-free. The tax-free portion is calculated using IRS Form 8606 and the pro-rata rule: your total basis divided by the year-end IRA balance plus distributions. You cannot cherry-pick only your after-tax dollars.
Required Minimum Distributions (RMDs)
RMDs must begin by April 1 of the year after you reach your RMD age. Currently age 73 — increasing to age 75 starting in 2033 under SECURE 2.0. The first RMD can be delayed until April 1 following that year, but subsequent RMDs are due by December 31 each year. Delaying the first RMD means taking two RMDs in one year.
RMD Calculation
Your RMD is calculated by dividing your prior year-end IRA balance by your life expectancy factor from the IRS Uniform Lifetime Table. For example, at age 73 the factor is 26.5 — meaning you must withdraw approximately 3.77% of your IRA balance. If the sole beneficiary is a spouse more than 10 years younger, use the Joint Life Expectancy Table.
Missed RMD Penalty
If you fail to take your full RMD, the penalty is 25% of the amount not withdrawn — reduced from 50% under SECURE 2.0. The penalty may be further reduced to 10% if you correct the shortfall and file Form 5329 within the IRS correction window. Always take your RMD on time — this is one of the most expensive retirement mistakes.
Roth IRA Distributions — Qualified vs. Nonqualified
The 5-Year Rule
To be a qualified distribution, the Roth IRA must have been open for at least 5 tax years. The 5-year clock starts on January 1 of the year you made your first contribution or conversion to any Roth IRA. Once you satisfy the 5-year rule for one Roth IRA, it applies to all Roth IRAs you own.
Qualified Distribution Requirements
A Roth distribution is qualified — and therefore entirely tax-free — if it meets the 5-year holding period AND one of: age 59.5 or older, disability, first-time home purchase (up to $10,000 lifetime), or distribution to your beneficiary after death. Qualified distributions are never taxed, regardless of how much the account has grown.
Ordering Rules for Nonqualified Distributions
When a Roth distribution is not qualified, IRS ordering rules determine what is taxed: (1) regular contributions come out first — always tax-free and penalty-free; (2) conversion amounts come out second, on a first-in-first-out basis, with taxable conversions subject to a 10% penalty if withdrawn within 5 years; (3) earnings come out last and are taxable as ordinary income plus a 10% penalty unless an exception applies.
No Lifetime RMDs
Roth IRAs are NOT subject to Required Minimum Distributions during the original owner's lifetime. This is one of the Roth IRA's most powerful features — your money can continue growing tax-free for as long as you live. Designated Roth accounts in employer plans (Roth 401(k)s) are subject to RMDs unless rolled into a Roth IRA.
Early Distribution 10% Additional Tax & Exceptions
The 10% Additional Tax
Distributions from a traditional IRA before age 59.5 are generally subject to a 10% additional tax on the taxable portion. This is on top of ordinary income tax. For a $50,000 early withdrawal by someone in the 24% bracket, the total tax bill could be $17,000 — $12,000 income tax plus $5,000 penalty.
First-Time Home Purchase (Up to $10,000)
You can withdraw up to $10,000 (lifetime limit) penalty-free from a traditional or Roth IRA for qualified first-time homebuyer expenses. The IRS defines a first-time homebuyer as someone who has not owned a principal residence in the last 2 years. The funds must be used within 120 days of withdrawal for acquisition costs.
Higher Education Expenses
Penalty-free withdrawals are allowed for qualified higher education expenses — tuition, fees, books, supplies, and equipment — for you, your spouse, your children, or your grandchildren. Room and board counts if the student is enrolled at least half-time. This exception applies to traditional IRAs and Roth IRAs.
Medical Expenses & Health Insurance
Unreimbursed medical expenses exceeding 7.5% of AGI qualify for penalty-free withdrawal. Additionally, if you are receiving unemployment compensation, you can withdraw IRA funds to pay for health insurance premiums for yourself, your spouse, and dependents without penalty.
Substantially Equal Periodic Payments (72(t))
Under IRC Section 72(t), you can take penalty-free IRA distributions by committing to a series of substantially equal periodic payments based on your life expectancy. You must continue the payments for the longer of 5 years or until age 59.5. There are three IRS-approved calculation methods: amortization, annuitization, and required minimum distribution. Modifying the payment stream before the commitment period ends triggers retroactive penalties on all prior payments.
Birth or Adoption (Up to $5,000)
Under SECURE 2.0, each parent can withdraw up to $5,000 penalty-free from an IRA or employer retirement plan for a qualified birth or adoption. The withdrawal must be made within 1 year of the birth or adoption. You may later recontribute these amounts to the IRA.
Inherited IRA Rules — SECURE Act & SECURE 2.0
The 10-Year Rule
Under the SECURE Act, most non-spouse beneficiaries must withdraw the entire inherited IRA balance within 10 years of the original owner's death. There are no annual RMDs — you can take the entire balance in year 10 — but the entire account must be empty by December 31 of the 10th year following death. This rule applies to traditional IRAs, Roth IRAs, and employer plans.
Eligible Designated Beneficiaries
Certain beneficiaries are exempt from the 10-year rule and can stretch distributions over their life expectancy: surviving spouses, minor children of the decedent (until age 21, then the 10-year clock starts), disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the decedent. These are the only exceptions — all other beneficiaries fall under the 10-year rule.
Surviving Spouse Options
A surviving spouse has the most flexibility: (1) treat the IRA as their own by rolling it into their existing IRA; (2) treat themselves as the beneficiary and take RMDs based on their own life expectancy starting when the decedent would have reached RMD age; or (3) disclaim the IRA. Rolling over is usually the best option for maximizing tax deferral.
Roth Inherited IRAs
While Roth IRAs are not subject to RMDs during the original owner's lifetime, inherited Roth IRAs are subject to the same distribution rules as inherited traditional IRAs. Distributions of earnings are tax-free only if the Roth IRA met the 5-year holding period. Non-spouse beneficiaries must empty the inherited Roth IRA within 10 years, but the distributions remain tax-free and penalty-free.
Trusts as IRA Beneficiaries
Naming a trust as an IRA beneficiary requires extreme care. To qualify for stretch or 10-year treatment, the trust must be a see-through trust with identifiable beneficiaries, valid under state law, irrevocable at death, and properly documented with the IRA custodian by the required deadline. A poorly drafted trust can force all IRA assets out within 5 years and cost hundreds of thousands in unnecessary taxes.
Planning for Inherited IRAs
If you inherit an IRA, work with a tax professional immediately. The tax consequences of taking large distributions in a compressed timeframe can be severe — potentially pushing you into higher tax brackets and triggering Medicare IRMAA surcharges. Strategic partial distributions over the 10-year window can minimize the total tax burden.