Some Types of IRA Withdrawals Free of Penalties
Individual retirement accounts (IRAs) are among the most common tools people use to save money for retirement. However, it’s quite common for people to face some unexpected financial hardships and need to withdraw money before the minimum age of 59 1/2.
In most cases, financial advisors will strongly recommend against doing so, as early withdrawals are subject to income tax plus a 10 percent early withdrawal penalty. But some people are left without any other options.
It’s worth knowing that there are some exceptions to these early withdrawal penalties. These include the following:
- Large medical bills: Medical expenses not covered by insurance that are more than 7.5 percent of your adjusted gross income can be covered by IRA withdrawals without penalty.
- Health insurance: You may use IRA withdrawals to pay for health insurance for you, your spouse and your dependents if you lose your job and have collected unemployment for at least 12 straight weeks.
- College: IRA withdrawals can pay for college expenses for you, your spouse, your children or your grandchildren.
- First home: IRA withdrawals can pay for the costs of buying, building or rebuilding a first home. The exemption is $10,000 for an individual and $20,000 for a couple, to be used or returned to the IRA within 120 days.
- Early retirement: If you wish to retire before age 59 1/2, you can withdraw money from your IRA in some calculated payments in what is called the Substantially Equal Period Payment program. These withdrawals must be made for at least five years or until you hit 59 1/2, whichever is later.
- Other exceptions: Additional exceptions include total and permanent disability, inheritance, natural disaster and military service.
If you would like to learn more about IRA withdrawals and how you can avoid penalties, speak with a knowledgeable Florida estate planning lawyer at The Charles Law Offices.