IRAs and other retirement accounts are intended to help fund a person’s retirement. But sometimes, circumstances dictate the need for those funds. Taking money out of IRA’s should be the last resort, since the distribution can come with a heavy tax penalty.
THE PENALTY IS 10% CORRECT?
- True – not only the penalty, but you will also have to pay income tax for federal and state.
BUT THERE ARE WAYS THE PENALTY CAN BE AVOIDED CORRECT?
- Yes – the penalty does not apply to anyone age 59 ½ or older.
- The penalty also does not apply if you meet one of the exceptions.
WHAT ARE THE EXCEPTIONS?
Some have been around for a long time as well as some new ones.
- First time home purchase –
- Someone who has not owned a home in the last two years
- Up to $10,000
- Qualified higher education expenses
- Tuition, fees, books, required equipment
- Pay for health insurance while unemployed
- If you are disabled
- Strict requirements and not easy to meet
- For unreimbursed medical expenses over 10% of your adjusted gross income.
And tax levies – not tax debt – IRS has to have levied assets
LAST WEEK WE TALKED ABOUT INHERITED IRAs BEING TAXABLE?
- Yes, they are taxable, but in most cases are not subject to the 10% penalty on any withdrawals.
DON’T THEY NORMALLY WITHHOLD TAX ON THE DISTRIBUTIONS?
- Yes, but usually it does not cover the entire amount of the tax and penalty, so be careful.
WE ARE RUNNING OUT OF TIME, SO ONE LAST QUESTION, IF YOU TAKE A DISTRIBUTION CAN YOU CHANGE YOUR MIND AND PUT IT BACK?
- Yes as long as it is done within 60 days.
Be sure to talk to a tax professional if you have any questions about taking money out of IRAs.