Withdrawing money from retirement accounts
If you’ve opened an individual retirement account (IRA) with your broker and you want to make a withdrawal, there are additional rules you need to know.
Withdrawals from retirement accounts have brokerage taxes that withdrawals from regular brokerage accounts don’t. If you take money out of a traditional IRA or 401(k) account, you have to pay income tax on the amount of your withdrawal. You’ll add the withdrawal to your taxable income when preparing your tax return, and then you must pay the resulting taxes, which will depend on your tax bracket.
What’s more, those who are younger than 59½ often have to pay early withdrawal penalties, which is why it’s not recommended to tap into your retirement savings. The federal government charges early withdrawal penalties equal to 10% of the withdrawal. Your state may also charge a penalty of its own. Fortunately, there are some exceptions. It may be possible to avoid a penalty if your withdrawal is for any of the following:
The way taxes and penalties are handled depend on the broker. Some require you to withhold these from the amount you withdraw, which means you’d need to take out more money to end up with the amount you want. Others let you decide if you want to withhold anything. If not, then you’re responsible for paying any applicable taxes and penalties when filing your tax return.
Plan ahead for a smooth withdrawal process
It’s not quite as fast or easy to withdraw money from a brokerage account as it is to get money out of your bank account. If you need to make any trades, those will take a couple days to settle. You’ll also need to wait for the funds to transfer to your bank account after you make the withdrawal, unless you pay extra to wire the money.
What this means is that it’s best to give yourself some time to withdraw money from a brokerage account. You’ll be able to get a hold of your money, but it’s not a process that you can rush.
View more information: https://www.fool.com/the-ascent/buying-stocks/how-to-withdraw-money-from-brokerage-account/