Normally when you withdrawal from your IRA before you turn 59 1/2 then you will incur a 10 percent withdrawal penalty along with income tax on the amount withdrawn. There are only a select few circumstances that allow for withdrawals that do not incur a penalty. I do want you to be aware that while there are circumstances that may allow for individuals to withdraw IRA monies without penalties it doesn’t mean that it is the best option. Make sure if you fall into one of these circumstances that this really is the best option for you.
At Accuplan Benefits Services if for whatever reason you need to withdrawal from your IRA please fill out the withdrawal form and make sure you check the appropriate withdrawal reason.
The following are a few of circumstances where individuals may withdraw IRA monies without penalty:
A First Home Purchase
First time home buyers can penalty free take an IRA distribution of up to $10,000 or $20,000 for couples to be used as a down payment on your first home purchase. It is considered a first home purchase if you haven’t owned a home within the past two years.
Looking to pay for college for you, a spouse, a child or grandchild? You can pay for tuition, fees, books and other supplies required for attendance. You may be able to pay for room and board as long as you are at least a half time student. One thing to note is that it does count as taxable income and could hurt the student from receiving federal financial aid.
Any non reimbursable medical payments that exceed 10% of your adjusted gross income can be paid by funds from your IRA monies. The distribution from your IRA has to be in the same year as the medical expense.
If you are unemployed you can take a withdrawal penalty free from your IRA to pay for health insurance for you, your spouse or any dependents. In order to qualify you must receive unemployment compensation for 12 consecutive weeks and the distribution must be in the year or following year that you received the compensation and no later than 60 days from being reemployed.
If you are disabled to the point you cannot participate in gainful activity due to a physical or mental condition you can qualify for exemption to the early withdrawal penalty. You will need to show proof of this by having a doctor determine that your condition is as such and looks to be such for the long future.
These are a few of the ways that you may withdrawal from your IRA without having to pay an early withdrawal penalty. You still need to make sure you actually qualify for these. Each situation is different and could affect your ability to qualify for these exemptions. As a strong reminder, just because you may qualify for these exemptions doesn’t mean it is the best option for you. That means you need to do your own homework to make sure you are doing the best thing for you and your situation. You may need to even chat with a CPA or tax attorney to make sure you are doing what is best for you.
Author: Nick Barker