Lot’s of random facts regarding IRA’s based on questions I commonly get.  Many may seem obvious but I still get the questions so here goes:

1.  Inherited IRA’s:  The SECURE act a few years ago changed the rules for inherited IRA’s by “non-spouse” beneficiaries where you had to liquidate within 10 years.  Any inherited IRA from 2020 on falls into that category, before that and you had the option of stretching out distributions over your lifetime.  However, last week the IRS finally clarified one very important question with the new rules that was lingering.  If you inherit an IRA from someone that has already reached RMD age (if they were over 70 1/2 when you inherited then odds are they were taking RMD’s), then you must continue with annual RMD’s at a minimum but still have the entire account liquidated by year 10.  If you have inherited an IRA in the past few years and fall into this category, there isn’t any penalty if you haven’t been taking annual distributions, but going forward plan on taking money out annually.  A couple other points with inherited IRA’s:  there isn’t any limit on how much you can withdraw, you can liquidate the entire account the first year if you wish.  There isn’t any early withdrawal penalty either, just ordinary income tax on any amount you take out.
2. Traditional / Rollover IRA’s are attached to only one social security number, therefore you can’t put your spouse on your account.  The spouse can be your beneficary, but the account is strictly in your name only.
3. Back Door Roth contributions:  For higher income earners that don’t qualify for traditional Roth IRA contributions each year you may have the ability to do a back door Roth.  Keep in mind this only works if you don’t have other pretax IRA accounts.  (ie.  all other retirement money is in your work 401k).  Open a traditional IRA account, make a “non-deductible” IRA contribution (let’s say $7000).  File your taxes showing a non-deductible IRA contribution.  Then do a Roth conversion and move that $7000 to a Roth IRA.  You will report that on form 8606 the following tax year but your basis is $7000 so it is a non taxable event.
4. Is there ever a time when I can access my IRA prior to age 59 1/2 without the additional 10% tax penalty, yes there is:

• Substantially equal periodic payments. You can arrange for a series of substantially equal periodic payments. This method requires careful calculation and adherence to strict rules but allows penalty-free withdrawals.
• Medical expenses. Withdrawals for medical expenses exceeding 7.5 percent of your adjusted gross income, or AGI, are exempt from the penalty.
• Higher education expenses. You can use penalty-free withdrawals for qualified higher education expenses for you, your spouse, and your children.
• First-time home purchase. You can withdraw up to $10,000 (lifetime limit) for qualified home acquisition costs without penalty.
• Birth or adoption. You can withdraw up to $5,000 for expenses related to the birth or adoption of a child.
• Emergency expenses. Starting January 1, 2024, you can withdraw up to $1,000 annually for emergency personal expenses without penalty.
• Disaster recovery. Withdrawals for qualified disaster recovery expenses are exempt from the penalty, up to an aggregate limit of $22,000.
• Disability. If you are disabled and cannot engage in substantial gainful activity, you can withdraw funds without penalty.
• Long-term care. Beginning December 29, 2025, you can take penalty-free withdrawals for qualified long-term care expenses.
• Terminal illness. Withdrawals due to terminal illness are exempt from the penalty.
• Post-death withdrawals. Amounts withdrawn after the IRA owner’s death are not subject to the penalty.
• Military reservists. Active-duty military reservists called to duty for at least 180 days can withdraw funds without penalty.
• Health insurance premiums during unemployment. If you receive unemployment compensation for 12 consecutive weeks, you can withdraw funds to pay for health insurance premiums without penalty.
• Domestic abuse victims. Starting January 1, 2024, you can take penalty-free withdrawals of up to $10,000 if you are a victim of domestic abuse.
• IRS levies. Withdrawals to pay IRS levies on the IRA account are not subject to the penalty.

It’s important to note that SIMPLE IRAs incur a 25 percent penalty for early withdrawals within the first two years of participation. Additionally, Roth IRAs have different rules, allowing penalty-free access to contributions but potentially taxing and penalizing withdrawals of earnings.