Penalty Free IRA Withdrawals

The purpose of having an IRA is for future retirees to have some supplement income available during their retirement years. 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 cause hefty penalties as well as the withdrawals subjected to state and federal taxes.

But there are also cases where withdrawals or distributions from traditional IRA’s will not be subjected to 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in order to prevent early withdrawals from the IRA, there are certain cases where they can be permitted and thus be withdrawn without penalty. Here are just some of them.

Paying for Medical Insurance 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 to meet. You should be out of job and 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 received during the year of unemployment compensation or even the following year. The distributions should also be received no later than 60 days after you are able to get another job.

Disability Withdrawals

Traditional IRA’s also permit penalty-free early withdrawals to those who contribute to it in cases of disability. If a doctor determines that you have a mental or physical disability that prevents you from taking any gainful employment opportunities, then you may be eligible for taking penalty-free withdrawals from your IRA. But the disability should be 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 withdrawals.

Purchasing a First Home

When you are planning to purchase, build or renovate a 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 purchasing a first time home 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.

 

Posted by Ardent Editor on Sep 24 2012 in IRAs Tags: , , , ,

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