IRS Publication 590-B: Distribution from IRAs

What Is IRS Publication 590-B?

IRS Publication 590-B explains the tax implications of withdrawing money from any type of individual retirement account (IRA) before or after retirement. It specifies when you can't withdraw money without paying a penalty and when you must withdraw money.

Key Takeaways:

  • IRS Publication 590-B calculates the taxes you'll owe when you withdraw money from any type of IRA account.
  • If you have a traditional IRA, see Chapter 1.
  • If you have a Roth IRA, see Chapter 2.

The publication includes three chapters, several appendices, and worksheets to assist the taxpayer. Publication 590-A covers the tax rules for contributing to retirement accounts.

Understanding IRS Publication 590-B

There are several types of IRAs, including the traditional IRA and the Roth IRA, the SEP, and the SIMPLE IRA. But the big distinction is between the traditional and the Roth IRA:

  • A traditional IRA permits a taxpayer to contribute pre-tax earnings up to a certain amount each year. The wage-earner gets an immediate tax break, and taxes on the amount paid into the account are deferred until the taxpayer withdraws money.
  • A Roth IRA allows a taxpayer to contribute post-tax earnings up to a certain amount each year. The wage-earner pays the income taxes upfront, so withdrawals taken after retirement will not be taxed.

An IRA distribution for higher education expenses or a first-time home purchase is not subject to the 10% early withdrawal penalty.

IRS Publication 590-B is organized to explain the different tax implications of these two types of IRA accounts:

  • Chapters 1 and 2 of IRS Publication 590-B explain all the rules for the traditional IRA and the Roth IRA, respectively. It covers when you can withdraw money and at what age you must withdraw money. It also includes penalties for early withdrawals from traditional IRAs.
  • Chapter 3 covers permitted early withdrawals used to pay for damage caused by natural disasters. These exceptions in 2019 were extended only to people with losses attributed to three 2017 disasters, including Hurricane Harvey, Hurricane Irma, and the California wildfires. Even these require repayment of the money to avoid a penalty down the line.
  • An introductory section includes a table clarifying the differences between traditional and Roth IRAs, rules for required distributions, taxation of these accounts, and regulations for filing Form 8606. This is the form that must be filed to report distributions from any type of IRA.
  • Chapter 4 provides general information on getting help with tax-related issues.
  • Appendix A is a worksheet for determining your required minimum distribution, and Appendix B contains a life expectancy table needed to calculate recommended minimum distributions.

Penalties and Exemptions

Keep an eye on the penalties detailed in Publication 590-B, and the exceptions to those penalties. For example, most early distributions trigger a 10% penalty. The penalty goes up to 25% if money is withdrawn during the first two years of participation in a SIMPLE IRA. However, a withdrawal for qualified higher education expenses or first-time home purchase is not subject to the penalty.

Other Publications

The IRS has numerous publications explaining the ins and outs of qualified retirement plans.

  • If you run a small business or work for one, you may be interested in IRS Publication 560: Retirement Plans for Small Business.
  • Another IRS publication, Tax Information for Retirement Plans, has extensive information on saving for retirement and retirement plan administration.
  • An IRS FAQs page contains brief information about the various types of IRAs and their tax implications.