If you are under 59.5 years old, you are probably aware that you cannot take distributions from your IRA without paying a 10% penalty to the IRS for early withdrawal. However, there are situations that would allow for penalty free distributions. Keep in mind, unless it is a Roth IRA, you will still have to pay ordinary income taxes on the distribution. However, assuming you fit one of the criteria below, you can avoid the 10% penalty.
- Medical Expenses: Withdrawing money to cover medical expenses if these expenses are over 7.5% of the personals adjusted income.
- First Time Home Buyer: Withdrawing money to help purchase your first home. This distribution is limited to $10,000 penalty free. Anything above $10,000 would be subject to a 10% penalty.
- Inherited IRA: When you inherit an IRA, you can take penalty-free distributions at any age.
- IRS Levy: Due to unpaid taxes, the IRS can seize your IRA money, which is not subject to the 10% penalty.
- Disability: If your doctor certifies that you have a mental or physical disability, you can take penalty-free distributions
- Higher Educational Expenses: This could be expenses associated with yourself, spouse, or your children. The IRS will not penalize you if you are taking distributions to cover higher educational expenses.
- Health Insurance: If you are unemployed and have been receiving unemployment insurance benefits for at least 12 consecutive weeks, you can take penalty free distributions assuming you receive the distributions no more than 60 days after being re-employed again.
DISCLAIMER: Midland Trust does not offer investment, tax, financial, or legal advice nor do we endorse any products, investments, or companies that offer such advice and/or investments. All parties are strongly encouraged to perform their own due diligence and consult with the appropriate professional(s) licensed in that area before entering into any type of investment.
*All investments involve risk. There are no guarantees that alternative asset investments will increase returns and minimize losses. Like traditional investments, there are inherent risks of investing in alternative assets and many hold the opportunity to lose most or all money invested.