Skip to main content

How do I withdraw funds from my Betterment IRA account?

Published | Updated

How do I withdraw funds from my IRA account?

Withdrawing funds from your IRA account is straightforward, but it’s important to understand the types of withdrawals available, potential penalties, tax implications, and requirements.

Steps to Withdraw Funds from an IRA

  1. Log in to your Betterment account on a web browser. This action cannot be performed in the mobile app.
  2. Click "Transfer or Rollover" on the home page.
  3. Select "Withdraw" and follow the prompts to specify the account, amount, and withdrawal type.

Key Considerations for IRA Withdrawals

Early Withdrawal Penalties

  • If you withdraw IRA funds before age 59½, the IRS may impose a 10% early withdrawal penalty on top of regular income taxes.
  • Penalty Exceptions: Penalty-free IRA withdrawals may apply for:
    • A first-time home purchase (up to $10,000).
    • Qualified education expenses.
    • Medical expenses exceeding 7.5% of your adjusted gross income (AGI).
    • Disability or other IRS-defined events.

IRA Tax Withholding Options

  • Traditional IRAs: Withdrawals are taxed as ordinary income. You can elect to withhold a percentage for federal and state taxes when making your withdrawal.
  • Roth IRAs: Withdrawals are generally tax-free if you’ve met the five-year rule and are over age 59½.

What Types of IRA Distributions Are Available?

When withdrawing from your IRA account, you’ll select one of the following distribution options:

  • Early Distribution: For account holders under age 59½. These withdrawals may incur a 10% tax penalty in addition to regular income taxes unless a penalty exception applies.
  • Normal Distribution: For account holders aged 59½ or older. These withdrawals are generally taxed but not penalized.
  • Removal of Excess Contributions: If you’ve contributed more than the annual limit, you’ll need to withdraw both the excess contributions and any gains. Betterment will calculate these amounts for you automatically.
  • Beneficiary Distribution: Used for inherited IRAs or in the event of the account holder’s death.
  • Disability Distribution: If you meet IRS criteria for disability, you may withdraw funds penalty-free.

For more details, consult IRS Publication 590-B.

Form 1099-R: General Information and Special Exceptions

Form 1099-R reports all IRA distributions, including withdrawals, rollovers, and other transactions. While it provides key tax details, it does not reflect special exceptions like penalty waivers.

Key Points About Form 1099-R

  • Standard Reporting: Brokerages like Betterment report distributions as required by the IRS but do not customize Form 1099-R for special exceptions.
  • Special Exceptions: If a special exception (e.g., first-time home purchase or disability) applies to your IRA distribution, it is your responsibility to self-report it when filing taxes.
  • Consult a Tax Professional: Seek guidance on reporting exceptions correctly.
  • Refer to IRS Resources: Check Publication 590-B for detailed instructions.

Required Minimum Distributions (RMDs)

If you have a Traditional or SEP IRA, you may need to take an RMD annually. Here’s what you need to know:

Who Needs to Take an RMD?

  • You turn 73 in 2024.
  • You took an RMD last year.

RMD Calculations:

  • Betterment calculates RMDs for Traditional and SEP IRAs held at Betterment as of December 31 of the prior year.
  • Betterment does not calculate RMDs for Inherited IRAs.
  • No Roth IRA RMDs are required during the account owner’s lifetime.

How to Confirm Your RMD Amount

How to Request an RMD

  1. Log in to your Betterment account using a web browser.
  2. Navigate to: Transfer or Rollover ➡ Withdraw ➡ Traditional or SEP IRA ➡ Normal Distribution ➡ Request a Distribution. Enter the RMD Amount.
  3. Follow the prompts to confirm and submit your RMD.

RMD Deadlines

To meet the IRS deadline for your 2024 Required Minimum Distribution (RMD), you must take your RMD by December 31, 2025. To ensure your RMD is processed in time to meet the IRS deadline, you must submit your request to Betterment by December 26, 2025. Requests submitted after this date may not be processed in time.

Important Notes on RMDs

  • RMDs are subject to income tax. Missing the deadline may result in IRS penalties.
  • Betterment is not a tax advisor. Consult a qualified tax professional for specific guidance.

Additional Notes

  • Processing Time: IRA withdrawals typically take 5–7 business days.
  • Account Verification: Linked external accounts must be held in your name. Additional verification may be required.
  • Cancelation: IRA withdrawals cannot be canceled once initiated.

Betterment is not a tax advisor. The information provided here is for informational purposes only and should not be considered tax advice. For specific guidance on your tax situation, including IRA withdrawals, penalties, or exemptions, consult a qualified tax advisor or refer to IRS Publication 590-B.