Seven ways to avoid a heavy withdrawal penalty on your IRA

Seven ways to avoid a heavy withdrawal penalty on your IRA

The IRA owners are subject to heavy penalties of 10% on early withdrawals.  However there are ways to avoid this heavy penalty in an emergency or in some urgent situations.  If you have sufficient documentation to substantiate these situations, then the early withdrawal penalties are waived.

Permanent disability – If the IRA account holder is permanently disabled for any reason, he/she can withdraw money without attracting any penalty. Death – In case of death of an IRA account holder, his/her estate will not be attracting the early withdrawal penalty. Withdrawal for medical expenses – if the IRA account holder is seriously ill or injured, and such an illness or injury requires expensive or prolonged medical treatment; the early withdrawal penalty is waived.  However there is only one condition – the expenses involved must be in excess of 7.5 per cent of the AGI of the account holder. First time home purchase – IRS makes it easier for an IRA account holder to buy his/her first house.  While buying such house an amount of ,000 can be withdrawn from IRA account.  Remember, this is a lifetime limit! Educational costs – if there is any urgent education cost for higher education (mostly towards college fees) for you or your spouse, your children or your grandchildren, you can safely withdraw from your IRA.  Remember, you still need to pay Federal income tax on such withdrawals. Payment of taxes – if IRS has placed a Levy on your wages for payment of taxes, you can use your IRA account to withdraw money and clear this tax liability.  This is not an exemption which you would like to qualify, but if you are in such an uncomfortable position, you can certainly withdraw from your IRA account and clear your tax liability. Medical Insurance premiums – if you are in an uncomfortable jobless position, and you need to pay your Medical Insurance premium, you can take the help of your IRA account to make such a payment.  Remember, you need to be unemployed for more than twelve weeks before you make such a withdrawal.

Always remember that these exemptions are specific and intended to help you in emergencies.  You should always try to avoid Withdrawing such money if you are young because then you are losing the compounding of tax free money for your retirement.  Withdrawing hundreds of dollars will mean losing thousands at the time of retirement!