How to avoid penalties due to IRA Early Withdrawals?

Sometimes, you just need access to your IRA account to make ends meet but you have heard about an IRS penalty for early withdrawal.  Are there any exceptions?

A person can make early withdrawals from their IRA without paying a penalty by utilizing covered exceptions under the tax laws.  The following outlines the general rule for early withdrawal penalty and a few of the more common options for withdrawal penalty free.  Please note, the following only outlines withdrawal penalties and not taxable consequences and I strongly recommend that before making an early withdrawal you should speak with a financial professional to consider the impact on your personal finances and each exceptions limits and criteria.

 The General Rule: If you withdraw from your traditional IRA when you are younger than 59 ½ you are subject to a 10% early withdrawal penalty in addition to the tax implications.

The Exceptions:  If you withdraw for any of the following reasons, you will avoid the 10% early withdrawal penalty:

1)      Higher Education Costs: For you, your spouse or the children of you or grandchildren of your or your spouse and classified as a college, university or vocational school eligible to participate in federal student aid programs.

2)      Medical Expenses: Non-reimbursed medical expenses exceeding a certain percentage of your adjusted gross income.

3)      Medical Insurance Premiums: If unemployed for at least 12 weeks.

4)      Set up an Annuity: Following an IRS approved distribution system based on life expectancy.

5)      First Home Purchase: $10,000 for a single person or $20,000 for a couple to buy your first home.

6)      Disability: Disability must prevent gainful employment.

7)      Turn 59 ½: Upon attaining age 59 1/2 , may make penalty free regular withdrawals for any reason.

For more information about early withdrawals from your IRA, please contact Vincent J. Russo & Associates, P.C. at (516) 683-1717.

By Jeffrey R. Neuman, Esq., Guest Blogger