|Question: I need money--can I take funds from my IRA?|
Yes, but you may be subject to a 10 percent penalty for early withdrawal if you're not yet age 59½. If you are 59½ or older and take money from your IRA, you will not be assessed a penalty, though you may still have to pay income tax on all or part of the distribution. The purpose of this premature distribution tax is to discourage you from exhausting your IRA savings too soon. However, the penalty can be a significant drawback if you need money to meet unexpected expenses.
If you are experiencing a cash crunch, it's usually better to draw on other investments before dipping into your IRA. However, if your IRA is your only sizable asset, you may have no choice. If that's the case, be aware that there are a number of exceptions to the premature distribution rule.
If you are disabled, you are exempt from the penalty, as long as you meet the IRS definition of disability. If an IRA owner dies before reaching age 59½, and you are a beneficiary of the account, distributions that you receive are exempt. If you need supplementary income, you can take IRA distributions as a series of "substantially equal payments" over your life expectancy or the joint life expectancy of you and your beneficiary. These distributions may avoid the penalty as long as you don't modify the payments within certain time frames.
Subject to limits and conditions, the penalty tax generally will not apply to IRA distributions taken to pay qualifying medical expenses, health insurance premiums while you're unemployed, higher education costs, and first-time home-buyer expenses. It also does not apply to amounts rolled over from one IRA to another (assuming you follow the rules for rollovers), to amounts that the IRS levies from your IRA to cover your tax bill, or to qualified reservist distributions.
Other exceptions may also apply. Finally, Roth IRAs may be subject to special rules of their own.