IRA Withdrawals

Withdrawals and distributions at a glance

The rules for making a withdrawal from an Individual Retirement Account (IRA) vary greatly depending upon the type of IRA, your age, and the circumstances of your withdrawal. It’s important to understand these rules to avoid fees or penalties whenever possible.

Some key things to know about traditional IRA withdrawals

We’ve summarized some general information about IRA withdrawal rules. If you need more specific information concerning your individual financial situation, please consult with a financial planner or tax advisor. Dodge & Cox doesn’t offer financial planning or tax advice, and the information provided isn’t intended to be a complete summary of all the rules that apply.

Age 59½ and under

If you make a withdrawal from a traditional IRA before you turn 59½, the Internal Revenue Service (IRS) considers it an early withdrawal. Typically, with a traditional IRA, the deductible contributions and earnings are treated as ordinary income in the year they are distributed. Unless an exception applies, the IRS imposes an additional 10% penalty tax. See the IRS website for a list of penalty exceptions for an early IRA withdrawal.

Over age 59½

You’re not required to begin withdrawals from your traditional IRA until you reach 72 (age 70½ if you attained age 70½ before January 1, 2020). The deductible contributions and earnings are treated as ordinary income in the year they’re distributed.

Age 72 (or 70½ and over)

Once you turn 72 (age 70½ if you attained age 70½ before January 1, 2020), you must begin to take annual Required Minimum Distributions ("RMDs"), or withdrawals, from your traditional IRA. Your first RMD must be taken by April 1 of the year following the year in which you turn 72 (or age 70½, if applicable). Every year after that, you’ll need to take out a minimum amount from your IRA based upon IRS determined amounts.

We can help you determine your RMD amount for assets invested in the Dodge & Cox Funds. We can also assist you with taking your RMD withdrawal or exchanging the amount into a regular taxable account if you’d prefer to stay invested. Please note: the IRS imposes a 50% penalty on missed RMDs.
 

Get the form you need to make a withdrawal. 

Some key things to know about Roth IRA withdrawals

We’ve summarized some general information about IRA withdrawal rules. If you need more specific information concerning your individual financial situation, please consult with a financial planner or tax advisor. Dodge & Cox doesn’t offer financial planning or tax advice, and the information provided isn’t intended to be a complete summary of all the rules that apply.

You may make withdrawals from your Roth IRA at any time. If the distribution is a "qualified distribution," it’s tax-free. To be considered a qualified distribution, your withdrawal needs to satisfy Internal Revenue Service (IRS) requirements.

  • The withdrawal must occur more than five years after the first day of the year for which you first contributed to your Roth IRA.
  • In addition, you must satisfy at least one of the following conditions:
    • You’re 59½ or older when you make the withdrawal.
    • The withdrawal is made to your beneficiary or estate after your death.
    • You’re disabled (as defined in the tax code) when you make the withdrawal.
    • You’re using the withdrawal to cover eligible “first-time homebuyer” expenses, up to a lifetime maximum of $10,000. These are the costs of purchasing, building, or rebuilding a principal residence (including customary settlement, financing or closing costs). The purchaser may be you, your spouse, or a child, grandchild, parent or grandparent of you or your spouse.

In contrast to a traditional IRA, there are no requirements for when you must start making withdrawals from your Roth IRA or on minimum required withdrawal amounts during your lifetime.

If you don’t meet the qualified withdrawal requirements, the tax treatment of a withdrawal depends on the character of the amounts withdrawn, determined according to specified IRS ordering rules. These ordering rules are complex. See IRS Publication 590-B for more details on how to determine the taxes on a nonqualified withdrawal from your Roth IRA.
 

Get the form you need to make a withdrawal. 

Some key things to know about inherited IRA withdrawals

Making financial decisions after losing someone you care about can make a difficult time even harder. We understand and we're here to help.

We’ve summarized some general information about IRA withdrawal rules. If you need more specific information concerning your individual financial situation, please consult with a financial planner or tax advisor. Dodge & Cox doesn’t offer financial planning or tax advice, and the information provided isn’t intended to be a complete summary of all the rules that apply.

If you inherit an IRA or retirement plan account following the death of the original owner, you’re eligible to open an inherited or beneficiary IRA. If you‘re a beneficiary, it’s important to understand the rules and requirements to avoid fees or penalties from the Internal Revenue Service (IRS).

The Setting Every Community Up for Retirement Enhancement Act of 2019 ("SECURE Act") revised many of the required distribution rules for inherited IRAs. Primarily, your options on what you may do with the account you’re inheriting depend on whether the original account owner was your spouse or not.

Inheriting from a spouse

When you’re inheriting an IRA or retirement plan account from a spouse, you have more options. If it’s an IRA, you can treat the account as your own if you are the sole beneficiary of the IRA, or you can roll over retirement plan or IRA assets into an IRA for yourself, and the assets will be treated as if they were yours to begin with. Please note, the time when you need to begin taking distributions may vary depending upon whether you structure the IRA as an inherited IRA or elect to treat it as your own.

Inheriting from someone other than a spouse

Generally, distributions from a retirement account for a beneficiary must be made within 10 years after the death of the account owner. There are exceptions to this rule, including if you are an "eligible designated beneficiary," in which case you may be able to stretch out the distributions over your lifetime.

The following are considered eligible designated beneficiaries:

  • You’re the surviving spouse of the original account owner. 
  • You’re a minor child of the original account owner. Please note generally, once the minor child beneficiary reaches the age of majority, the rules change and the account must be distributed within 10 years from that point.
  • You’re disabled or chronically ill (as defined in the tax code).
  • You’re any other individual not more than 10 years younger than the decedent. 

If you designated a beneficiary that’s not an individual—for example, a charity—then distributions generally must be made within five years of your death. Certain trusts are exempt from the five-year distribution rule.

Get the form you need to make a withdrawal. 

We’re here to help

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Dodge & Cox Funds

P.O. Box 219502

Kansas City, MO 64121-9502

 

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430 W Seventh Street, Ste 219502

Kansas City, MO 64105-1407

 

Tax laws and regulations are complex and subject to change, which can materially impact investment results. Dodge & Cox cannot guarantee that the information herein is accurate, complete, or timely and makes no warranties with respect to such information, including your use of, or any tax position taken in reliance on, such information. Only Dodge & Cox Funds are available for purchase in a Dodge & Cox Fund IRA Account. Investment options available through an employer's retirement plan or other IRA providers and any associated fees and expenses will differ. Consult with a tax or legal advisor before making any investment decision.