The Do's and Don'ts of IRA Withdrawals

Editor's note: As a special feature for April, TheStreet.com is offering a seven-part series on maximizing your IRA. This installment is Part 3. Click here for Part 1, Part 2, Part 4, Part 5, Part 6 and Part 7.

There are substantial penalties to be paid for making withdrawals from an IRA before you reach age 59 1/2 or, in the case of a Roth IRA, if withdrawals occur within the first five years of a contribution. So investors need to make every effort to plan ahead and should have a reserve fund established for emergencies.

Early withdrawals from traditional IRAs are subject to a 10% penalty in addition to the payment of income taxes on the amount withdrawn. There is a loophole that lets you avoid a penalty if you withdraw money from an IRA and pay it back within 60 days. However, no investor should rely on this form of short-term financing. ...