Wednesday, May 28, 2014
Most people know that withdrawing from your traditional IRA early is a big blunder. However, there are a few ways to withdraw from your IRA without triggering the 1-% penalty:
- Required Minimum Distribution. Section 72(t) of the IRC allows individuals under 59 ½ to withdraw from their IRA and avoid the penalties by taking a Series of Substantially Equal Periodic Payments, which are designated to liquidate the account over a life expectancy period.
- Fixed Amortization Method. Under SOSEPP method is fixed amortization in which your equal payment is based on one of three life expectancy tables published by the IRS.
- Fixed Annuitization Method. This method uses an annuitization factor published by the IRS to determine your equal payments.
- Higher Education Expenses. Individuals can withdraw from their IRA if they are using the money to help pay for college and higher education expenses.
- Disability. If you are “totally and permanently disabled,” you can take distributions from your IRA sans penalty.
- Death. If you die your beneficiaries can take distributions from your IRA.
- Medical Expenses. If you have high, unreimbursed medical expenses, you are allowed to withdraw a limited amount without penalty.
- Medical Insurance Premiums. You are able to withdraw an amount to pay for medical insurance premiums if you have lost your job and receive unemployment compensation.
- First Time Home Purchase. You are allowed to withdraw up to $10,000 for the costs associated with a first home without penalty.
- Qualified Reservist. If you served after September 11, 2001 for at least six months, then you may make a withdrawal from your IRA during your active duty period.
- Divorce. Private Letter Rulings have allowed divorced parties to divide an IRA into two separate IRAs.
- Roth IRA Conversion. When you convert your Traditional IRA to a Roth IRA there is no 10% penalty.
- Rollover. You can have access to your funds without penalty as long as your IRA rollover is completed within 60 days.
- Investment Advisor Fees. You have the ability to authorize your custodian to pay your financial advisor or investment manager from your IRA funds any fees for managing your IRA.
- Periodic Temporary “Relief” Provisions. Occasionally Congress will enact special legislation allowing individuals impacted by natural disasters to access IRA funds without paying the 10% penalty.
See 15 Ways To Withdraw From Your IRA Without Penalty, Forbes, 2014.