7 Ways To Tap Into Your IRA Early
In these times of foreclosures and high gas prices, some people may have IRAs they want to tap into before 59 1/2. Read on to see how you can.
1. Permanent disability of IRA owner.
Your money can be withdrawn without penalty in the event the IRA you become permanently disabled. You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.
2. Withdrawals are used to pay non-reimbursed medical expenses.
In the event of serious illness or injury that requires prolonged or expensive medical treatment, the IRS will waive the early withdrawal fee on the condition that the expenses are in excess of 7.5% of your adjusted gross income.
3. Withdrawals used to help pay for first-time home purchase.
Despite a lifetime limit of $10,000, this exemption can make it much easier for an IRA owner to buy a house. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer who is any of the following.
a. Yourself.
b. Your spouse.
c. Your or your spouse's child.
d. Your or your spouse's grandchild.
e. Your or your spouse's parent or other ancestor.
4. Higher education costs.
Higher education expenses can be paid for as long as they are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. In addition, if the individual is at least a half-time student, room and board are qualified higher education expenses.
5. Money is used to pay back taxes to the IRS after a levy has been placed against the IRA.
This is not an exemption that will make you rich, but it may save you money if you find yourself in an uncomfortable position with the IRS.
6. Withdrawals used to pay medical insurance premiums.
You will not have to pay the tax on these amounts if all of the following conditions apply.
a. You lost your job.
b. You received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.
c. You receive the distributions during either the year you received the unemployment compensation or the following year.
d. You receive the distributions no later than 60 days after you have been reemployed.
7. Death of IRA owner.
Hey who said the IRS was heartless. If you pass away before you are 59 1/2 years old, your estate will not be paying the 10% early withdrawal fee.
One hitch to all of this is the holder of an IRA is subject to a five year waiting period. An investor could not, for example, deposit $2,500 in their IRA this year and withdrawal it next year penalty-free even if it would otherwise qualify as an exemption.
Labels: IRA, money saving tip
Posted By: Joe on Monday, March 24, 2008
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