When it is OK to remove money from your IRA.
There are times when the money in your IRA is needed, but then when you look at the penalties attached, you know you have to find alternative solutions. Here are withdrawals that can be made without penalty
When you take money out of an individual retirement account (IRA) before you reach age 59½, the Internal Revenue Service (IRS) considers these premature distributions. Therefore you would incur a 10% penalty charge on the amount withdrawn in addition to owing any tax that might be due on the money.
The good news is there are times when the IRS says it is OK to use your retirement savings early.
Two penalty-free withdrawal circumstances are when you use IRA money to pay higher-education expenses or to help purchase your first home.
The IRS says no penalty will be assessed as long as your IRA money goes toward qualified schooling costs for yourself, your spouse or your children or grandchildren.
The eligible student must attend an IRS-approved institution. The approved institution is any college, university, vocational school or other post-secondary facility that meets federal student aid program requirements. The school can be public, private or nonprofit as long as it is accredited.
As said earlier, first-time home buyers will have no penalty fees. More good news, this does not restrict a person to only their first house. How is this? You qualify under the tax rules as long as you or your spouse didn’t own a principal residence at any time during the previous two years.
You can use up to $10,000 in IRA funds toward the purchase of your first home. If you’re married, and you and your spouse are both first-time buyers, you each can pull from retirement accounts, giving you $20,000 in residential cash.
A note of caution on this since you must use the IRA funds within 120 days of withdrawal to pay qualified acquisition costs. This includes the costs of buying, building or rebuilding a home, along with any usual settlement, financing or closing costs.
An alternative solution is to do a free money search. This search can uncover wealth you did not know you had. There are 9 out of 10 Americans that have unclaimed cash. Many people are surprised that they are listed and do have money awaiting them. There are numerous ways in which assets become unclaimed property. Unused gift cards is the most recent addition to the unclaimed property accounts.
