Early IRA Withdrawals Without Penalties

An IRA or Individual Retirement Account is a type of account that aims to earmark funds to invest and earn for retirement. The purpose of having an IRA is for future retirees to have some means of income available during their retirement years. They can be very helpful if one knows how they work. One way to fully take advantage of the benefits that IRA’s can offer is by avoiding trying to withdraw funds from the prematurely. Doing so will usually result in hefty penalties. Not only that, the withdrawals will be subjected to state and federal taxes if they are withdrawn early.

But there are also cases where withdrawals or distributions from traditional IRA’s will not be subjected to such penalties. While the IRS imposes certain penalties in order to prevent early withdrawals from the IRA, there are certain cases where they can be permitted and thus be withdrawn without incurring any penalty. Here are just some of those possible cases.

As Medical Insurance Payments While Unemployed

Penalty-free withdrawals from the traditional IRA are possible if you need to use them to pay for your medical insurance while you are out of work. But in order for one to be eligible for the penalty-free withdrawal, there are certain conditions that needs to be met. You should be out of a job and has started receiving unemployment compensation from the state for at least 12 consecutive weeks. And in order for the distributions to be penalty-free, they should be withdrawn during the same year of unemployment compensation or even the following year. The distributions should also be received no later than 60 days after you gain employment.

Withdrawals As A Result Of Disability 

It is good to know that Traditional IRA’s also permit penalty-free early withdrawals in cases of disabilities. If a doctor determines that you have a mental or physical disability that will prevent you from taking any gainful employment opportunity any time soon, then you may be eligible for taking penalty-free withdrawals from your IRA. This is possible provided that the said disability is considered as a permanent condition or is determined to last for an indefinite period of time. It would be best if you first inquire with your IRA custodian or trustee in order to know more about the requirements for qualification for such IRA withdrawals.

First Home Purchase

When you are planning to purchase, build or renovate your very first home, you are allowed a penalty-free early withdrawal of up to $10,000 on your IRA. This amount is considered as a lifetime limit. You may be considered as a first time homeowner candidate if you have never owned a home for the past two years. If you are married, your spouse is also entitled for an additional $10,000 early distribution from his or her IRA.

 

Posted by Ardent Editor on Feb 11 2017 in IRAs Tags: , ,

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