Those at Sears Holdings should be aware that withdrawals from a Traditional Individual Retirement Account (IRA) prior to age 59½ are generally subject to a 10% tax penalty. The reasoning behind this is that policymakers wanted to create a disincentive to use these savings for anything other than retirement. 1
Sears Holdings employees may also want to consider how policymakers recognize that life can present more pressing circumstances requiring access to these savings. In appreciation of this, the list of withdrawals that may be taken from a Traditional IRA without incurring a 10% early withdrawal penalty has grown over the years.
Penalty-Free Withdrawals
Outlined below are the circumstances under which individuals employed at Sears Holdings may withdraw from an IRA prior to age 59½, without a tax penalty. Ordinary income tax, however, generally is due on such distributions.
- Death — If you work for Sears Holdings and die prior to age 59½, the beneficiary(ies) of your IRA may withdraw the assets without penalty. However, if your beneficiary decides to roll it over into his or her IRA, he or she will forfeit this exception. 2
- Disability — Disability is defined as being unable to engage in any gainful employment because of a mental or physical disability, as determined by a physician. 3
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1. Under the SECURE Act, in most circumstances, once an individual employed at Sears Holdings reaches age 72, they must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.
2. Under the SECURE Act, distributions from a person employed by Sears Holdings to a non-spouse beneficiary are generally required to be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner's death. The new rule does not require the non-spouse beneficiary to take withdrawals during the 10-year period. But all the money must be withdrawn by the end of the 10th calendar year following the inheritance. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.
3. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Federal and state laws and regulations are subject to change, which may have an impact on after-tax investment returns. Please consult legal or tax professionals for specific information regarding your individual situation.