Can You Take Money Out of Edward Jones Without Penalty?

Withdrawing money from an Edward Jones account can lead to penalties depending on the account type and timing. While some accounts provide easy access, others impose restrictions that may result in fees or tax consequences. Knowing the rules for penalty-free withdrawals can help avoid unexpected costs.

Retirement Plans and Withdrawal Penalties

Edward Jones retirement accounts, including traditional IRAs and 401(k)s, have strict withdrawal rules. These accounts are meant for long-term savings, and early withdrawals often trigger financial penalties. The IRS imposes a 10% early withdrawal penalty on distributions taken before age 59½, in addition to income taxes on the withdrawn amount.

Since traditional IRAs and 401(k)s are funded with pre-tax dollars, withdrawals are treated as ordinary income, which may push account holders into a higher tax bracket. For example, withdrawing $20,000 from a traditional IRA when total taxable income is $60,000 could increase tax liability by moving some income into a higher bracket.

Employer-sponsored 401(k) plans may have additional restrictions. Some plans limit withdrawals to specific situations, such as hardship distributions or loans. A 401(k) loan must be repaid with interest. If not repaid on time, the remaining balance is considered a taxable distribution, incurring both income taxes and the 10% penalty if the account holder is under 59½.

Age Requirements for Penalty-Free Distributions

The standard age for penalty-free withdrawals from most tax-advantaged retirement accounts is 59½. After this, distributions are subject to regular income taxes but not the early withdrawal penalty.

A special exception applies to 401(k) plans: individuals who leave their job in or after the year they turn 55 can withdraw from that employer’s 401(k) without penalty. This “Rule of 55” does not apply to IRAs. Rolling a 401(k) into an IRA means the standard 59½ rule applies.

At age 73, required minimum distributions (RMDs) begin for traditional IRAs and most 401(k)s. The SECURE 2.0 Act raised the RMD age from 72 to 73 in 2023. Account holders must withdraw a certain percentage of their balance annually based on IRS life expectancy tables. Failing to take the required amount results in a penalty—50% of the shortfall before 2023, reduced to 25% in 2023, and lowered to 10% if corrected within a specified timeframe.

Penalty Exceptions

Certain circumstances allow penalty-free withdrawals from retirement accounts. Medical expenses exceeding 7.5% of adjusted gross income (AGI) qualify, meaning withdrawals covering costs above this threshold are not penalized. Individuals with a total and permanent disability, as certified by a physician, can also withdraw early without penalty.

Higher education expenses qualify for penalty-free withdrawals from IRAs but not 401(k)s. Funds can be used for tuition, fees, books, and required supplies for the account holder, spouse, children, or grandchildren. The withdrawal amount cannot exceed the total qualified education expenses for the year.

First-time homebuyers can withdraw up to $10,000 from an IRA without penalty to cover costs related to purchasing, building, or rebuilding a home. This exception does not apply to 401(k)s.

Military reservists called to active duty for at least 180 days can take penalty-free withdrawals during their service period. Additionally, if an IRS levy is placed on a retirement account due to unpaid taxes, distributions taken to satisfy the levy are not subject to the early withdrawal penalty.

Nonretirement Accounts and Liquidity

Nonretirement investment accounts at Edward Jones provide greater flexibility for withdrawals. Individual and joint taxable brokerage accounts allow investors to access funds at any time without IRS penalties. However, withdrawals may still have tax implications, particularly for capital gains.

Selling investments in a brokerage account may trigger capital gains tax. The rate depends on how long the asset was held before being sold. Investments held for over a year qualify for long-term capital gains tax rates, which range from 0% to 20% depending on taxable income. Assets sold within a year of purchase are subject to short-term capital gains tax, which is taxed as ordinary income. Holding investments for longer periods can help minimize tax liability.

Dividend income from stocks and mutual funds in a taxable account is another tax consideration. Qualified dividends, typically from U.S. companies meeting IRS requirements, are taxed at the lower long-term capital gains rates, while nonqualified dividends are taxed as ordinary income. Investors relying on dividend payments should be aware of how these earnings impact their overall tax burden, particularly if they fall into higher income brackets where additional taxes, such as the 3.8% Net Investment Income Tax, may apply.

Required Documentation for Withdrawals

Withdrawing funds from an Edward Jones account requires proper documentation to comply with financial regulations and internal policies. The specific paperwork depends on the account type and withdrawal reason.

For retirement accounts, individuals must complete a distribution request form specifying the withdrawal amount, tax withholding preferences, and reason for the distribution. If the withdrawal qualifies for a penalty exception, supporting documentation may be required, such as medical expense receipts or proof of disability. For RMDs, Edward Jones may calculate the minimum amount, but account holders must authorize the transaction. A direct rollover request form is needed to move funds to another retirement account without tax withholding or penalties.

For nonretirement accounts, withdrawals generally require fewer formalities, but large transfers or external bank transactions may need identity verification, such as a government-issued ID or a notarized signature. If the account is jointly owned, all account holders may need to authorize the withdrawal. In the event of an account holder’s passing, beneficiaries must provide a death certificate and estate-related legal documents before accessing funds. Ensuring all required documentation is submitted correctly can streamline the withdrawal process and prevent delays.