Can I Withdraw from My IRA without Penalty?

Can I Withdraw from My IRA without Penalty?

Times are tough for many of us. There may be times where we find that we need additional cash and there are few options that remain. While we understand that our 401(k)s and IRAs are designed for creating retirement income, these accounts may be the only source of a sizable amount of cash.We should consider that withdrawals from a tax-deferred account before the age of 59 are subject to ordinary income tax as well as a 10% early withdrawal penalty. For individuals in higher income tax brackets, this could result in losing half of the withdrawal to taxes.Before contacting anyone to request that a check be cut and mailed out, let's review the IRS-approved ways to withdraw from your IRA penalty-free.Buying a first homeFirst-time home buyers can pull up to $10,000 from an IRA to buy or build a first home. If married and both spouses are first-time home buyers, a combined $20,000 can be used.This can be helpful for those who have saved some money but may not yet have the 20% down payment required to eliminate private mortgage insurance (PMI). A larger down payment will also help reduce the monthly payment.College expensesWhile it is not advisable to forgo retirement savings to fully fund our children's college educations, IRA funds are still an option for higher education expenses. These expenses can include tuition, fees, books and supplies, and room and board.Medical expensesIf more than 7.5% of income is being spent on unreimbursed medical expenses, IRA money can be used to cover the excess. It may be helpful to discuss this with a tax preparer or CPA to make sure that the calculations are appropriately applied.Health insuranceIf an employee loses a job and gets unemployment benefits for 12 consecutive weeks, an IRA can be used to pay medical premiums. Trying to maintain a household on unemployment income is enough of a challenge, and Cobra payments are often higher than the required payments when employed.DisabilityIf a disability restricts the ability to work before the age of 59 , IRA distributions can be taken without penalty.Military serviceThere are some restrictions for military personnel, but soldiers can take a distribution while on active-duty if they have been active for about 6 months.Last resortIf none of the above situations apply, there is one more method. The IRS requires the account holder to take a series of equal payments for a minimum of five years or to age 59 , whichever is longer.The payment amount is not randomly determined. It must be calculated based on the account holder's lie expectancy with an IRS-approved calculation method. Using the approved method may end up providing a smaller amount of money than the actual amount needed.In addition, even if the payments are not needed for that length of time, they must still be taken.For some investors, these options bring a bit of comfort. For others, they just confirm that there is no comfortable way to get around the 10% penalty.Regardless of the circumstance, we should carefully review all options before making a decision so that we are able to do what is in the best interest of our household.

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