You might not have to wait until you're 59 1/2
7 Penalty Free Ways to Withdraw Money from Your Retirement Account
by Ryan Vance
Under most circumstances, an early withdrawal of money from a 401K account or IRA (Individual Retirement Account) would trigger a 10% penalty fee. However, there are certain circumstances when you can withdraw money from your IRA without penalty. Here are 7 ways to access that money early without penalty.
Health Insurance Premiums during Unemployment
If you become unemployed and lose your health coverage, you will definitely have difficulty affording monthly premiums. Once you have been unemployed for 12 weeks continuously, the IRS allows you to make a penalty free withdrawal from your IRA (Individual Retirement Account) to cover health insurance premiums. This privilege will expire once you have been reemployed for 60 days and more.
First Home Purchases
If you find yourself in a situation whereby you are $10,000 or less short of the down payment for your first home purchase, then you can withdraw from your IRA without penalty. This withdrawal can also be applied to the payment of qualified cost of buying, building, or rebuilding a property. The qualified cost must, however, be paid no later than 120 days after the withdrawal is made from your IRA account.
Higher Education Expenses
You can also apply for an early withdrawal from an IRA account without incurring penalty to cover qualified higher education expenses. This includes the cost of tuition, books, supplies, and equipment required for the attendance of a higher institution. This privilege applies whether you are the person getting a higher education, your spouse, children, grandchildren, or dependents. Remember that withdrawals from an IRA account would most likely count as an income for the student beneficiary thereby limiting eligibility for financial aid.
Start saving for your future today. Consider these 11 ways to save $1000 while living paycheck to paycheck.
IRS (Internal Revenue Service) Debts
Another scenario when the 10% penalty will not apply to an early withdrawal from an IRA is if the withdrawal is meant to pay an IRS debt.
Large Medical Bills
If you incur large medical bills, a withdrawal to pay those bills would be exempted from the 10% penalty fee for early withdrawals. Note that you would need to provide evidence that the withdrawal is meant to pay for medical expenses.
Are you one of the many people heading for debt trouble without knowing it? This simple checklist can help you find out and tell you how to avoid it.
Cover Expenses after Disability
Another instance when you can withdraw from your IRA early without penalty is to cover expenses after a total or permanent disability. You will, however, have to provide documentation from your physician to be eligible for this privilege.
You are allowed by the IRS to borrow against your 401K provided your employer permits it without triggering the 10% penalty fee.
Reviewed November 2017
Take the Next Step:
- Do you have a debt problem? Find out if you do and how we can help.
- Funding an emergency fund now can help prevent debt problems and even bankruptcy later. Start saving today with these 11 easy ways to find $1000 for an emergency fund.
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Share your thoughts about this article with the editor.