Dear Liz: I’ve been retired for 17 years due to illness. My wife has passed away. I know nothing about finances. She did it all. I have an IRA with my wife. I want to withdraw from it but not be penalized on taxes. I know there is a way, but I don’t know the proper way.
Answer: Please find a good tax professional to help you. Retirement accounts have a lot of rules and some stiff penalties if you get things wrong. Even people who know a lot about finances can get confused and make costly mistakes. Since you’re starting from zero, you’ll definitely want expert advice to guide you.
Let’s start with the fact that withdrawals from traditional retirement accounts are typically taxable. That’s only fair, since people usually get a tax break for putting money into the account and the balances grow tax-deferred for many years. At some point, Uncle Sam wants his due. Withdrawals from IRAs usually must start by a certain age (currently 73) and are added to your taxable income. You can face penalties if you don’t make these withdrawals on time. You’ll also face penalties if you try to tap retirement accounts too early (typically before age 59½).
Roth IRAs are the exception to these rules. You don’t get a tax break on contributions to a Roth, but withdrawals in retirement are typically tax free and there’s no requirement to make withdrawals by a certain age. Also, you can withdraw the money you contributed directly to a Roth IRA at any time without facing taxes or penalties.
You mentioned that you have this account “with” your late wife, but you can’t own an IRA with another person. If you’ve inherited your wife’s IRA, the rules about when you have to start taking withdrawals can vary. Again, you’ll want to consult a tax pro who can give you individualized guidance.