• When you lose your job or have unexpected expenses, unless you have a substantial emergency fund, you are left scrambling for funds to cover life’s emergencies – and money in IRAs is an obvious target.

    Funds withdrawn from an IRA are taxable, and if you are under 59-1/2 years of age, you will also pay a federal penalty of 10% and possibly a state penalty as well.

    Drawing funds early from your IRA will reduce your standard of living in retirement, so we hope you never have to withdraw funds early.  But if you do, here are eight ways to beat the early-withdrawal penalty for funds in an IRA (though the income taxes are inescapable),

    1. Annuitize

    Under IRC Sec. 72(t) you can avoid penalties by taking a series of substantially equal periodic payments until you are 59-1/2 (but not less than five years). To estimate how much you can withdraw each year, use the 72(t) calculator at Bankrate.com (web address: http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx)

    2. Buy a home

    If you haven’t owned a home for at least two years, you can withdraw up to $10,000 to buy a house in your name or in the name of a spouse, child or grandchild.

    3. Pay for education

    You can withdraw funds for college tuition and related expenses (books, materials, fees) for yourself, your spouse, children or grandchildren Certain income limits apply.

    4. Cover medical expenses

    You can withdraw from your IRA penalty-free to the extent that your medical expenses exceed 7.5% of your income. The expenses can be for you, a spouse or a dependent.

    5. Pay medical insurance premiums

    If you get unemployment compensation, you are eligible to withdraw funds to pay for your medical insurance premiums, as long as you’ve been unemployed for at least twelve weeks.

    6. Pay back taxes to the IRS

    If the IRS has placed a levy against your IRA, you can withdraw funds to pay the back taxes.

    7. Disability

    If you are “totally and permanently disabled” by IRS definition, you can take distributions from your IRA without penalty.

    8. Death

    If you die, your beneficiaries must begin taking distributions from your IRA, but there will be no penalty when they do so.

    Reprinted with permission from the Women’s Institute for Financial Education www.Wife.org and www.MoneyClubs.com. Founded in 1988, WIFE is a non-profit organization dedicated to providing financial education for women.

    Copyright 2012

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    Article by: Dianne Morris

    As a designer and entrepreneur, products for women have been my focus. Dianne Sullivan Designs created fun jewelry for boutiques and department stores. Miraflores Designs designed and supplied custom branded soap, shampoo and other toiletries for hotel chains. With Bay Linens, Inc, we created decorative bedding sold through Bloomingdales, Bed, Bath & Beyond and other retailers. Our home decor products, with the brand, China Seas, is sold at Isetan Department stores in Japan. At this stage of life I'm connecting with other women over 50 who want to examine their interests and to connect with each other. At ZestNow.com I want to gather useful information and inspiration for this new phase of life.

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