Distribution Rules

Traditional and Roth IRAs differ in their distribution rules: Traditional IRAs generally involve taxable withdrawals and require RMDs starting at age 73, while Roth IRAs offer tax-free withdrawals if certain conditions are met and do not require RMDs during the account holder’s lifetime. Please see below to learn more about distribution rules for each account type:

Traditional and Rollover IRAs

Once you reach age 59 ½, you are entitled to receive IRA distributions without penalty. You will pay taxes when you withdraw your pre-tax contributions and when you withdraw any earnings. However, if you are under age 59 ½ and receive an IRA distribution, an additional penalty of 10% will apply, unless you claim one of the following exceptions:

• First-time home purchase (up to $10,000).
• Qualified education expenses (for you, your spouse, children, or grandchildren).
• You become disabled (you must prove that you are incapable of working).
• Non-reimbursed medical expenses (expenses must exceed 7.5% of your adjusted gross income).
• Health insurance for the unemployed (only after 12 consecutive weeks of collecting unemployment benefits).
• Substantially equal annuity payments.

Roth IRAs

For a distribution to be considered a qualified distribution, it must meet two criteria. First, the distribution must occur after a 5-tax-year period starting from the first year a contribution was made to the Roth IRA. Second, it must follow one of these four events:

• The participant has reached age 59½.
• The distribution is made to a beneficiary following the participant’s death.
• The participant has become disabled.
• The withdrawal is used for qualified first-time homebuyer expenses or substantially equal periodic payments.

Before making a withdrawal, it is recommended to consult with a licensed tax advisor. Webull does not determine or provide guidance on which distribution type is applicable to your individual tax situation. For more information about distributions and the relevant rules, please visit irs.gov.

What is a Required Minimum Distribution (RMD)?

A Required Minimum Distribution (RMD) is the minimum amount that must be withdrawn from a retirement account, such as a Traditional IRA, 401(k), or other qualified retirement plan, starting at a certain age. The RMD rules ensure that individuals begin to withdraw and pay taxes on their retirement savings rather than deferring taxes indefinitely.

You generally need to begin taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you turn 72 (or 73 if you reach 72 after December 31, 2022). The amount of the RMD is calculated based on the account balance and the account holder’s life expectancy, as determined by IRS tables. Failure to take the required RMD can result in substantial penalties. To learn more about RMDs please visit irs.gov.